Bankit update on NPLs’ Recovery Rates

The number 18 of Bankit Notes on Financial Stability and Supervision provides an update to NPLs’ Recovery Rates analysis performed in number 13 and 11. The note also illustrates the results of the yearly survey on NPL sales, conducted by Bank of Italy starting from 2016.

While it may be interesting and somewhat useful to observe trends in recovery rates and sale prices some caveats should be taken in consideration before trying to extract any conclusion.

Recovery of sold position is affected by several relevant factor including

  1. Sale to private entity vs sale vs GACs vehicle or state sponsored entity (AMCO, Altas Fund, REV)
  2. Sale within a market based restructuring plan (Unicredit, Banco BPM) vs “firesale” within a State driven process (MPS, Veneto Banca, BPV etc)
  3. Sale through a JV project with investor servicer (DoValue-Fortress, Intrum-Intesa,Banco BPM-Credito Fondiario) vs straight sale

Performance of recovery of not sold positions may be affected by the sale process e.g. we may assume that sold positions include the 2 extremes of best collateralized loas in order to get an higher price and oldest positions with highest provisions in order to help match buyers expected returns.

Given that the main price driver of secured loan sale is collateral evaluation that is substantially affected by location and asset type (a villa in Capri is quite different from an office in Reggio Calabria) maintenance and building completeness.

Looking at closing activity may be significant to get an idea of what is going on with banks’balance sheets, but it should be considered that a portion of these loans is still open on  GACs SPV with notes 

Finally we can say that assessing recovery performance of NPLs is a quite complex issue that can be properly evaluated only when all expected collections have been realized (not during intermediate sales) and taking in account recovery cost that may be significant.

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GLG – Gerson Lehrman Group – Council Member

About Massimo Famularo

Investment Manager and Blogger Focus on Distressed Assets and Non Performing Loans Interested in Politics, Economics,
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