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Banks, net NPL more than halved in two years (-56%) In 2019 planned disposals for a further 50 billion gross

Online the 8th edition of the Banca IFIS NPL Market Watch: “2018 Transactions and 2019 Forecast”

Milan, 23th January 2019 – In Italy there are 266 billion gross NPLs to manage. To do this, we need a real “bad credit transformation industry”: an industry whose primary task is to make the debtor become creditworthy again. Of this huge stock of bad debts, equal to 13% of Italian GDP, 118 billion gross are still logged on banks’ balance sheets, while 154 billion have already been transferred to funds, to servicers or to specialized banks (from 2015 to the end of last year); as a final point, there are 7 billion which at the end of 2018 are estimated to be partly recovered and partly “canceled” because they are no longer payable (write-off on recovery) on transacted portfolios. This is the snapshot taken by Banca IFIS’ 8th edition of the NPL Market Watch: “2018 Transactions and 2019 Forecast”. That being said: what should we expect this year?

On the basis of the announced deals (thirty operations projected), transactions worth 50 billion gross are estimated by the end of 2019, down from the gross 66 billion transacted in 2018. Of the total, around 39% could be traded on the secondary market with a jump to two figures compared to the past year, when the percentage of transactions on the secondary market had stopped at 2%. Approximately 18% of impaired loans could be covered by state guarantees on NPL (GACS): the percentage is less than 2018 and is calculated on the basis of the deadline set by the legislator on 6th March for state coverage; but if there were to be an extension, as is the government’s intention, the percentage could increase.

The following are key highlights of the NPL Market Watch:

The decline in Non-Performing Loans: – € 49 billion for the stock of bank gross bad loans as of November 2018 (equal to € 118 billion) with the forecast for year-end closing at € 105 billion (-48% at the end of 2016). 77% of NPLs are Corporate, 48% secured. Looking at the net bad debts, the downshift is even lower at 56%: there were 87 billion at the end of 2016, 38 billion as of November 2018, a part of which must be considered of a functionally normal nature;

The NPE stock declines: 211 billion NPE bank (Q3 2018) down by 55 billion (-21%) compared to Year-End 2017;

Unlikely To Pay (UTP): the coverage ratio of UTPs gains strength, reaching 37.7% at the end of the third quarter of 2018. Net UTPs show a downtrend of 52 billion (Q3 2018);

Focus on prices: 17 billion is the price paid for portfolios transacted in 2018. They consist of mainly mixed portfolios (48.6 billion to which one must add 10 billion of secured portfolios). On the latter figure, pertaining to the breakdown of portfolios, the GACS incentive/effect, is evident;

Sellers and Buyers: the top 10 top sellers account for 77% of the NPLs transacted in 2018, while the top 8 top buyers account for 57% of finalized deals.
All details of the NPL Market Watch can be found in the attached file.

The Market Watch NPL edition January 2019 can also be downloaded online at this link here.