“With the economic recovery the problem of impaired loans (NPLs, non-performing loans, editor’s note) is gradually being scaled back”. This is what Fabio Panetta, Deputy Director General of the Bank of Italy, stated in his address at the institutional seminar on issues relating to “non-performing loans” at the Chamber of Deputies. To clarify the scale of the problem, Panetta pointed out that bad loans (sofferenze), at the end of last year, amounted to €81 billion, backed by collateral for €92 billion and by personal guarantees for a further €36 billion.
The executive from Palazzo Koch also provided detailed data on the real scale of the problem. “Last December the impaired loans of Italian banks amounted to €173 billion net of value adjustments (9.4% of total loans); they had reached – these are Panetta’s words – a peak of €200 billion in June 2015. Gross of adjustments, impaired loans amounted to €349 billion at the end of last year. This amount, often used as a reference in the press, refers to the nominal value of the exposures and therefore does not represent the actual risk weighing on bank balance sheets. Of the €173 billion of impaired loans, €92 billion related to situations in which a return to regular payments is still possible, especially if the recovery is consolidated. The so-called bad loans, that is, the riskiest component, stood at €81 billion, 4.4% of total loans. Against bad-loan exposures alone, banks hold collateral for €92 billion and personal guarantees for €36 billion.
Panetta then assured that “supervisory action will continue with intensity”. “The operational guidance on the management of impaired loans drawn up by the SSM (the ECB’s Single Supervisory Mechanism, editor’s note) will produce its effects in the years to come. In the coming months we plan to extend it to all Italian banks. They will have to adapt, improving their techniques for managing impaired loans. This will produce important effects, which will however materialise in the medium term. It would be useful to intervene in European legislation so that massive and extraordinary sales of impaired loans do not have a negative effect on the estimation of the prudential parameters of banks that use advanced models for measuring credit risk. Disincentives to sales must be avoided”.
In the words of the executive from Via Nazionale (the Bank of Italy), “a further, important contribution to the development of the market could come from the resumption of securitisation transactions. A swift finalisation of the European work on ‘simple and transparent’ securitisations, as part of the initiatives aimed at creating the capital markets union, appears particularly useful”.
However, the Bank of Italy executive warned, “resolving the problem of impaired loans takes time”.
“In the current market context, rapid, mass sales would result in a generalised and undesirable transfer of resources to the few specialised investors operating in oligopoly conditions; above all, they would erode banks’ capital base at a time when access to the capital market is still difficult. It should also be considered that a large part of impaired exposures is concentrated in banks whose financial condition is sound, such that they do not require their immediate and massive sale on the market. These intermediaries too, like the weaker ones, must improve their internal strategies for managing impaired loans in order to achieve recovery rates on average far higher than current selling prices, as shown by recent analyses carried out by the Bank of Italy”.
Reiterating that there is no doubt that “the high incidence of impaired loans creates risks for Italian banks (greater difficulty in accessing funding and capital markets; higher funding costs; higher management costs)”, Panetta proposed “measures aimed at improving quickly and credibly the functioning of civil justice and the time taken to recover loans, which would have important positive effects for the resolution of this problem and, more generally, for the functioning of the country’s economy”.
The problem of impaired loans “exists but is of a manageable size”, given that sales are accelerating and in the two-year period 2016-2017 “almost a quarter of NPLs have been or will be sold”, said in turn the Director General of ABI, Giovanni Sabatini, during the seminar. “We can assume”, Sabatini said, that “in the coming months there will be a further reduction in NPLs, both through securitisation transactions and through sales”. After sales of €19 billion in 2015 and €14 billion in 2016, he continued, in 2017, between transactions already announced or completed, we have reached €58 billion, so in the two-year period 2016-17 almost a quarter of total NPLs have been or will be sold
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