GACs is back (and lots of securitizations will follow)

As reported by Reuters, Italy and the European Commission have agreed on the renewal of a state guarantee scheme aimed at facilitating the sales of bad bank loans. The so-called ‘GACS’ scheme expired on March 6, but the Italian government reached an agreement with Brussels for an extension.

Italian government is expected to approve the new Gacs scheme in the same bill that will state the precautionary provisions to preserve ordinary operations of financial intermediaries and markets in case of hard brexit (here my article in Italian).

DBRS has recently published a short report on this topic highlighting how GACS has contributed substantially to boost NPL disposal volumes in the last 3 years

The new scheme is expected to be structured with a two-year term and a one-year extension option. The new scheme is also envisaged to require a higher rating level of BBB versus the prior minimum of BBB (low) on the most senior tranche.

As the first version of GACS boosted the market for securitization on NPLs, we can expect that this new version may have similar consequences. Before taking into account this update on the guarantee scheme Banca IFIS’s MARKET WATCH NPL estimated in 50bn the pipeline for 2019.

Before taking into account this update on the guarantee scheme Banca IFIS’s MARKET WATCH NPL estimated in 50bn the pipeline for 2019.

Italy’s NPL Ratio is still high compared with other EU countries, and 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.

In conclusion, most relevant drivers of NPL market in 2019 will include regulatory pressure to Non Performing Exposures as well as convenience to  use securitization schemes to benefit form the renewed guarantee scheme.

Even though current year’s volumes can hardly match 2018 extraordinary peak, we may expect a significant amount of NPL transaction also in 2019 with a large share of deal using new version of GACS. ì

#Savethedate CV Spring Date 2019 Milan Palazzo Mezzanot 5th April

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