Updated pipeline on Italian NPE Market

Banca IFIS recently issued an update to its NPL Market Watch showing a pipeline of new transactions worth some € 32 billion showing a slight decrease of only 5Bn with respect to the last forecast published in January.

A significant contribution (worth 1 quarter of the total) is expected to come from secondary market.

After 2 years of reduction, the total stock of NPE, including both banks’ and other entities’ balance sheet, is expected to increase in 2020 reaching 351 Bn close to historical peak of 2017.

The report tries to identify main drivers on 2020 market and underlines the relevance of a potential slowdown in recovery activity as well as a decline in price offered and some potential incentives for sellers (e.g.Tax Incentives, Increased flows of NPL, need to maintain business plan for GACs)

According to Banca Ifis current scenario should provide interesting opportunities for existing incumbents, especially those with large operations in the country and could be less appealing for newcomers.

My take on this topic impact of #Covid-19 on italian NPE i slightly different:

1- as others have pointed out offered prices are going to decrease due to expected longer recovery timing and higher risk premia this may delay, or even nullify the closing of lage disposal transactions – the postponement of MPS sale to AMCO reduced from inital 14bn to some 10 bn € can be an example of this effect

2-the real size of Covid-19 impact on on the economy as well as extraordinary measures deployed by government are not yet clear and it would be premature try to asses the consequence for the market – some potentially disruptive measures (for credit management industry) like suspension of paycheck seizure and foreclosures are still under discussion

3-banks are definitely going to face a substantial increase in NPE exposures due to the economic slowdown, but the given the extraordinary measures introduced by the government to support economy and the “Coronavirus response: Banking Package” introduced by European Commission to to facilitate bank lending it is possible the classifcation of loans to non perfoming status will be delayed to year end or even 2021 reducing the immediate pressure on primary market

4-secondary market may potentially offer interesting opportunities since servicer of large portfolios may be willing to partially compensate the reduction of collections this year, but the reduction in offered prices may be a relevant obstacle especially for secured loans

Finally, it is quite early to assess the impact of Covid-19 on NPE market, we can reasonably assume that it will be significant in terms of additional volumes and that a reduction in recovery speed will be experienced.

The extraordinary measures introduced to mitigate the negative consequences on economy will probably delay formal default classification meaning that we will probably see the real number of new bankruptcies and loan delinquency only in the final part of the year or even in 2021.

Are you interested in Italian banks and NPL/UTP market? Ask for a briefing  (in person or via conference call) by sending me a private message. I am also available for consulting projects on Distressed Assets pricing and Portfolio Management.

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GLG – Gerson Lehrman Group – Council Member

La Finanza in Soldoni

Parole Povere

About Massimo Famularo

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