Bankit on NPL recovery Rates
Note di stabilità finanziaria e vigilanzana n.35 Dicembre 2023
Bank of Italy published an update to its regular analysis on Non-Performing Loans recovery rates. Compared to 2021, the average recovery rate has increased on both loan sale (from 29% to 32%) and on balance sheet closed positions (from 45% to 47%).
In 2022, some 22 Bn of NPL Gross Book Vale has been eliminated from banks’ balance sheets. This figure, equal to about 4 times the value of new entries, is higher than 2021 both in absolute terms (17 billion) and as a percentage of non-performing loans outstanding at the end of the previous year (64 percent versus 42 percent).
The increase compared to 2021 is mainly due to to loans disposals (up from 14 billion to 18 billion), while position close through ordinary workout process remained essentially stable compared to the previous year (about 4 billion).
The improvement in the timing of disposals, that has been in place since 2015 continues, benefiting from both the reduction in outstanding amounts and low rates of entry into non-performing loans and the progress achieved by intermediaries in managing these loans. The share of positions closed within one year of classification as non-performing has gradually increased (from 38 percent for positions entered in 2015 to 65 percent for those in 2021). Updated data also show that 85 percent of positions are closed within three years of entering non-performing status.
Compared to previous years, the use of securitizations as a proportion of total disposals has been lower, partly due to the fact that as of June 14, 2022, GACS are no longer available. GACS assisted almost all major securitizations of non-performing loans (5.4 billion, 82 percent of non-performing loans securitized
Unlikely to pay exposures sales increased to 7 billion (5.7 billion in 2021).
Recovery rates of closed non-performing loans
Compared to 2021, the average recovery rate increased on both sold positions (from 29 percent to 32 percent) and closed positions in the ordinary way (from 45 percent to 47 percent).
The average recovery rate for non-performing loans backed by collateral was 40%, an increase from 2021 (38%) due to assignments, whose recovery rate increased from 34% to 38%. For positions not backed by collateral, the average recovery rate was 27 percent, up from the previous year (25 percent) on both transferred non-performing loans (from 22 percent to 24 percent) and those subject to ordinary recovery procedures (from 35 percent to 42 percent).
Transfer prices of impaired loans
The price of non-performing loans sold in 2022, derived on the basis of the annual survey conducted since 2016 on a very large sample of transactions, was 21 percent of the gross balance sheet exposure at the time of sale, up slightly from 20 percent in 2021. The increase, as already shown for the corresponding recovery rate, was attributable to both collateral-backed non-performing loans, for which the price rose to 32 percent (29 percent in 2021), and to unsecured loans, whose price increased to 12 percent (11 percent in 2021).
The transfer price of impaired loans other than non-performing loans was 34 percent, down 6 percentage points from the value observed in 2021, reflecting the lower weight of the guaranteed component.
Relevant Links:
https://www.bancaditalia.it/media/notizia/note-di-stabilit-finanziaria-e-vigilanza-n-35-i-tassi-di-recupero-delle-sofferenze-nel-2022/
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