Italy’s economy tipped into recession at the end of last year, according to latest figures. In the final three months of 2018, the economy shrank by 0.2%, following a 0.1% decline in the third quarter, according to the latest update published by ISTAT.
ECB has asked Italian (as well as the other EU) Banks to make a full provision for its bad debts, not only for the new ones, as stated in March guidelines, but also for the outstanding stock.
This may be a significant incentive to continue the large the NPL disposal process that has led to some 132-137Bn GBV transactions in 2017-18.
A substantial pipeline is also expected for 2019 where already announced deals are worth some 30Bn on primary market and 20Bn on secondary one as reported by the last Banca IFIS Market Whatch
After a 2018 mostly driven by SGA acquisition of Venete Banks legacy,
Unlikely To Pay exposures (UTP) market is also expected to be quite valuable in 2019.
GACs Scheme is due to expire in March 2019 even though an extension is deemed possible (already happened twice) and rumors of a potential amendment to include UTP are circulating since a while.
Regulatory framework has also seen quite relevant updates in the last 12 months as effectively summarized by Ernst& Young “The Italian NPEs market“
The most relevant challenges will come from NPEs calendar provisioning as a result of the combined action of ECB Addendum and Trilogue Agreement.
The first one is not a set of binding rules but a s: supervisory expectations for prudential provisioning. The second is a legislative proposal, subject to endorsement by EU ambassadors and adoption by the EU Council and the EU Parliament.
Figure 2.4 provides a direct comparison between the latest minimum common coverage factors required to banks by the Trilogue (as part of the ongoing process to amend the CRR) and by the ECB.
M&A activity is also expected to increase during 2019 in order to reduce the number of players in Italian banking system to better comply with regulators’expectations and to face the emerging competition of challeger banks.
#Savethedate I will be speaking at the IMN 2nd Annual Investors’ Conference on Greek and Cypriot NPLs.
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GLG – Gerson Lehrman Group – Council Member