A New Era for the Italian NPE Market

PWC published its regular update on on the Non Performing Loans (NPL) market in Italy.

In Italy, the NPEs in the first quarter of 2023 stood at approximately €58 billion, equating to a 2.9% gross NPE ratio, indicating historically low levels compared to the past. This figure showed almost no change compared to the previous quarter (4Q22), signifying a consistent convergence towards EU standards.

At the aggregated level, default rates remain well-controlled at around 1%, suggesting limited inflows to NPEs. However, the default rate for corporates has begun to increase again after several years.

Looking ahead to 2023, banks expect asset quality to deteriorate further across both consumer and corporate, as per the results of the spring 2023 edition of the EBA’s risk assessment questionnaire. The economic outlook may have stabilized in recent months, and unemployment rates remain at or near historical lows in Europe, but sticky inflation and increasing interest rates could still challenge overindebted borrowers.

Looking at the banks’ books, there are still signs of caution. IFRS9 stage 2 loans at the EU level stabilized at €1.350 billion, decreasing during Q1 2023 from 9.6% to 9.3% of total loans. This was mainly due to a decrease in stage 2 allocation for corporate loans. France is the country with the highest stock of stage 2 loans, surpassing €450 billion.

Italy exhibits a prospective risk higher than the EU average in stage 2 and loans. In December 2022, Italian banks held approximately €227 billion of stage 2 loans, representing 11.3% of the total compared to the EU average of 9.1%.

In addition, starting from 2020, over 340 billion euros of financing with public guarantee have been provided. These loans have completed the pre-amortization period and may experience a growth in risk profile in the current challenging macroeconomic environment.

Both banks and the Regulator are increasingly paying attention to these loans.

Several major banks have activated dedicated assessments of their stage 2 portfolios and identified preliminary actions to reinforce current management strategies to mitigate the further deterioration of positions and its related economic and capital impacts.

In this context, after the extensive clean-up of bank balance sheets from bad loans, the focus of new flows has shifted towards UTP and pre-deteriorated/ stage 2 assets. These credits require a closer approach to companies. The management approach is no longer focused on maximizing the amount to be recovered, but the priority becomes restoring the positions in clear difficulty.

Banks, investors and servicers need to review their agenda and refocus on new priorities, which requires developing and acquiring new skills and placing technology at the center of their strate.

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Massimo Famularo

Blogger and Investment Management Advisor with focus on Distressed Assets & NPL. Massimo is Chief NPL & Fintech Editor at Credit Village Magazine.

Credit Village is a leading company in the field of specialized publishing and event organization for the credit management industry and in all issues and aspects related to the NPE market, including ESG , M&A, Real Estate etc. Credit Village has been the first company in Italy to bring the culture of the credit management industry to the press, events and online, creating the largest community in the sector around itself.