Sales of non-performing loans (npl) portfolios are accelerating as Italian banks prepare to face the new wave of defaults due to the effects of the health crisis first and then the economic crisis. “A time bomb” ready to explode as the current scenario has been defined by a study by Bain & Company.
Yesterday Credito Fondiario announced that it had acquired a portfolio of impaired loans to the public administration of 180 million gross nominal. The transaction is part of a series of disposals that credit institutions have been carrying out for some time as part of the risk reduction process (PwC underlines that the exposure to non-performing loans has gone from 341 billion in 2015 to 135 billion at the end of 2019) and that as soon as possible it will return to being central to the banking strategy. Already in the first quarter, according to PwC calculations, portfolios of impaired loans were sold for 1.3 billion and, by the end of the year, the company expects that the risk reduction process of Italian banks may affect up to 35 billion packages of insolvencies, considering the expected maxi-operation on the 9 billion of bad debts borne by Mps and currently being negotiated between Rome and Brussels.
“In Italy, given the current GDP forecasts, the default rates in 2021 could reach more than five times compared to what was observed in 2019, reaching peaks of over 10% for businesses” comments Giulio Naso, partner of Bain & Company , according to which “this means that in a single year the stock of non-performing loans could reach six-year levels when they had accumulated NPL deriving from the five years of economic and financial crisis”. Basically up to 240 billion in a year. For PwC the new flows of bad loans will be between 60 and 100 billion in the next year and a half and the utp (unlikely to pay), which amounted to 61 billion before the crisis will be the most relevant and also more complex asset class to be managed with tens of thousands of SMEs at risk of default.
“We expect NPL inflows to increase significantly above pre-pandemic levels when the suspension of payments on mortgages and loans will expire, starting from the fourth quarter of 2020 or the first quarter of 2021 should the government extend the known measure finally Fitch which expects a 9.5% drop in GDP over 2020. On the other hand, with European Commission forecasts of a 11.2% drop in GDP (from -6.5% estimated in May), it is difficult to be optimistic.
Such a flow of NPL risks hitting the profitability of individual credit institutions in a few months, called to focus on managing insolvencies with respect to more profitable businesses as well as on any new capital needs. For Pwc it is therefore foreseeable that there will be an increasing attention on Italian credit quality and a careful monitoring of the evolution of asset quality and of the capital solidity of banks in the coming months.
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