The National NPE Market Observatory by Credit Village reported a decrease in volumes and the number of transactions in 2023, with 458 deals closed worth a total of €30.9 billion in Gross Book Value (GBV). The primary market saw a slight increase in NPE portfolio sales to 282, up from 251 in 2022, but the total GBV decreased further to €14.7 billion. For the first time since 2017, direct transactions between originators and investors were lower than those in Re-Trade operations on secondary markets, which amounted to €16.2 billion from 176 deals, compared to 265 in the previous year.
Notably, the secondary market data includes Banca Ifis’s acquisition of Revalea from the Mediobanca Group, holding a distressed portfolio worth €6.5 billion GBV, and significant deals by Credit Factor and a major transaction by Cherry Bank, acquiring a portfolio of €864 million GBV, reaching €2.7 billion GBV in acquisitions for 2023.
With the absence of GACS (government-backed guarantees), which facilitated large NPL portfolio disposals by bank originators until June 2022, there’s been a growth in volumes managed by various Alternative Investment Funds (AIFs), providing banks with opportunities for deleveraging and derecognition while retaining fund shares. Among these, the Back2Bonis Fund exceeded €2.5 billion in volumes, and the Efesto Fund managed credits worth approximately €1.7 billion GBV from around 2,500 SMEs.
However, many securitization operations that received state guarantees have been performing below expectations, leading to portfolio segment sales by many vehicles. In 2023, 21 SPVs sold one or more credit portfolios.
Notable transactions included multi-originator operations, especially by ICCREA, involving dozens of Cooperative Credit Banks in sales to primary investors totaling over €1 billion, and a securitization by the Luzzatti Popular Banks Consortium worth €313 million GBV, involving 11 banks.
In terms of asset classes, 40% of the sold GBV, amounting to €12.3 billion, consisted of secured debt exposures backed by real estate assets, while 60% comprised unsecured credits. Roberto Sergio, Director of the NPE Market Observatory and CEO of Credit Village, highlighted 2023 as a turning point in the Italian distressed credits sector, with market operators acknowledging the challenge of reversing the downward trend in bank-generated NPL and UTP volumes. The credit industry has shown maturity and resilience, managing risks and avoiding new NPL and UTP inflows despite recent extraordinary events.
The expectation for the coming years is for primary market portfolios to be sold to third parties in the range of €15 to €20 billion GBV annually. However, the existing NPE stock held by investors exceeds €350 billion GBV, promising future business opportunities but requiring a strategic shift, especially by large servicers, to address more complex and less previously focused portfolio clusters.
The future risk of eroded margins has prompted various players to revise their strategies and industrial plans, with a growing interest in Stage 2 credits, currently valued at around €170 billion and under scrutiny by the banking and regulatory system due to their significant prospective risk.
Gianpaolo Luzzi, Editorial Director of Credit Village, noted that two issues in 2023 created uncertainty impacting the market’s future: the controversial proposal by the Minister for Enterprises, Urso, which has generated distrust among especially foreign investors, and the anticipated implementation of EU Directive 2167/2021, aimed at facilitating credit sale and management operations in the European market but potentially complicating the already heavily regulated Italian context.
For a free copy of the 2023 White Papers from the National NPE Market Observatory by Credit Village, contact info@creditvillage.it
