Is the Italian non-performing loan (NPL) market about to take off?

You might recall that, in my last update, I looked at what impact the asset quality reviews (AQR) might have on the European portfolio market. I predicted that there would be an increase in transactional activity following the AQR process. I anticipate that a fair proportion of that activity will take place in southern Europe, and in Italy in particular is one country that is in the spotlight.


Sizeable NPL market

It’s no secret that the Italian non-performing loan (NPL) market is one of the largest potential markets with around €170bn of gross NPL (10.4% of customer loans) and around €300bn of gross impaired loans (18.8% of customer loans) as of June 2014. The market also has a favourable and consolidated legal framework for transactions.


The AQRs have definitively been one of the drivers for Italian banks to review their provisioning levels, with the NPL coverage ratio of the top 10 Italian banks moving from 51.8% in Q3 2013 to 54.8% in H1 2014.


Capital raising ahead of Comprehensive Assessment results

While waiting for the AQR and stress test results, Italian banks (such as MPS, Banco Popolare, BPM, Carige, etc) launched and successfully completed capital raising programs, improving their capital position. By the end of this month, we will know if the European Central Bank (ECB) judges these efforts to be sufficient or if further injections of capital or other restructuring will be required.


Looking at the dynamics of the Italian market, as we predicted in our Italian NPL market report earlier this year, we see clear signs of the market picking up. We’ve seen a number of disposal processes concerning unsecured consumer credit portfolios and we expect more action over the coming months.


Disposals and servicing

A few banks approached the market through a disposal process for their secured and unsecured NPL assets (both corporate and retail) and several other banks are carefully screening their NPL portfolios to see how the ground lies for a 2015 transaction. Moreover, the trend set in the Spanish market with the carve-out of banks’ servicing platforms has already started in the Italian market with UniCredit which is expected to finalise the disposal of its platform before year end.


So, to summarise, it’s looking like the Italian NPL market is heating up. What remains to be seen is how quickly NPLs will come to market, what levels of investor appetite are and what impact all this might have on bid-ask gaps.


What are you seeing in the Italian NPL market? How do you think the next 12-24 months will pan out? Feel free to share your thoughts in the comments box below or set up a meeting if you’d like to discuss things “offline”.

Richard Thompson |  Global Leader, Portfolio Advisory Group
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