NPL Meeting 2023 - Step Up
Banca IFIS presented its Market Watch
Banca Ifis's "Market Watch Npl: 2023-2025 scenario" was presented on Friday 22 September 2023 during the 12th edition of the "Npl Meeting", the annual event dedicated to the analysis of the impaired credit market.
The event, which was opened by Banca Ifis Chairman Ernesto Fürstenberg Fassio, was addressed by the Minister of Justice, Carlo Nordio, who discussed how justice reform can help make the management of impaired loans more efficient; and the Deputy Minister of Enterprise and Made in Italy, Valentino Valentini, who outlined the health of Italian companies and their resilience to energy and inflation shocks and geopolitical tensions thanks to the competitiveness of Made in Italy.
Then the CEO of Banca Ifis, Frederik Geertman, gave an overview of the main dynamics of the Italian and European Npl market, before handing over to Michael Spence, 2001 Nobel Prize winner for Economics, who illustrated macroeconomic trends and the international geopolitical scenario.
The panel devoted to supervision featured dialogue between Stefano Cappiello, Director of Regulation and Supervision of the Financial System at the Department of the Treasury, Ministry of Economy and Finance, and Ida Mercanti, Deputy Head of the Banking and Financial Supervision Department at the Bank of Italy, who addressed the topic of the new regulations on the Npl secondary market and the supervision of the authorities.
Finally, two round tables followed. The first, dedicated to an in-depth look at the main trends and challenges in the credit market, featured speeches by Gian Luca Sichel, CEO of Compass; Corrado Pavanati, Head of Risk Italy at Unicredit; and Roberto Parazzini, CEO of Deutsche Bank Italia. The second panel discussion focused on how the European Npl recovery industry is facing this historical period and its impacts on portfolio prices, through the addresses given by Katia Mariotti, CEO of Ifis Npl Investing, Marco Grimaldi, CEO of Arrow Global Italy and Francesco Buffi, Director of AB CarVal.
The Market Watch Npl - 18th edition
Impaired loans in banks, Italy and the EU compared: in the first quarter of 2023, the stock of impaired loans on the balance sheets of EU banks rose by 1% compared to the last quarter of 2022, going from 355 billion Euro to 357 billion Euro, but the proportion of total loans remained unchanged. The slight increase represents a slight reversal of a trend towards a sharp decline in the stock, which in European banks has fallen by 64% since the beginning of 2015 when it stood at 1.098 billion Euro.
The forwardlooking indicators of the major EU banks are improving, although remaining at higher levels than pre-Covid. In the first quarter of 2023, loans on EU bank balance sheets classified as stage 2 stand at 1.439 billion Euro (9,1% of the total), down from 1.458 billion Euro (9,4% of the total) at the end of 2022. In the same period, the stock of loans classified as forborne performing fell to 164 billion Euro (0,87% of the total) from 171 billion Euro at the end of 2022 (0,93%). Italy has a higher prospective risk than the EU average:loans classified as stage 2 account for 11,3% while those in forborne performing account for 1,41%.
The total stock of Npe (bank and investor balances) in Italy: at the end of 2022, total Npe in Italy reached 306 billion Euro, down sharply from the peak of 361 billion Euro reached at the end of 2015. For the threeyear period 2023-2025, uncertain macroeconomic conditions are expected to lead to a new but moderate increase in the stock to 311 billion Euro in 2023, 317 billion Euro in 2024 and 321 billion Euro at the end of 2025.
Npl and UtP transactions: by 2023, it is estimated that Npe transactions amounting to 32 billion will be carried out. This figure incorporates some 8 billion Euro of transactions, the accounting for which could be delayed until early 2024. More generally, in the three-year period 2023-2025, 84 billion Euro of Npe transactions are estimated. These will be mainly supported by the secondary market for Npl portfolios, the weight of which will increase to approximately 50% in both 2023 and 2024. Transactions in the primary will instead be driven by the continued de-risking process of the major banks and flows of impaired loans over the three-year period. The composition of assets transacted on the secondary market will instead see a significant increase in mixed and unsecured as a consequence of the assumed sale of portions of GACS-backed portfolios.
Evolution of Italian risk levels at geographical level: over the 2015-2023 period, the process of de-risking impaired credit led to the progressive realignment of risk levels in the different areas of Italy. In particular, in March 2023, the gap in the Npe ratio of southern areas over northern Italy has narrowed to just 2,2 percentage points, compared to the 6,4 percentage points in 20151. Even more pronounced is the realignment of the risk level, represented by the loan deterioration rate, between Southern and Northern Italy: this has gone from a differential of 2,1% at the start of 2015 to a differential of 0,4% in March 2023.
The trends of the impaired loan industry: despite having already reached the EBA target of 5% in 2021, the impaired loan industry continued to foster the de-risking process of Italian banks in 2022. In 2023, it is estimated that non performing exposures on the balance sheets of credit institutions will stand at 3%, down slightly from 3,1% at the end of 2022 and continuing a trend of strong easing that has continued since the peak in 2015.
In the last 8 years, impaired loans amounting to 352 billion Euro were transacted, of which 39 billion were UtP. In doing so, the banking sector managed to reduce the Npe ratio by 14 percentage points, from 17% at the start of 2015 to an estimated 3% by the end of 2023. As a result of this process, non performing exposures on bank balance sheets fell from 341 billion Euro at the beginning of 2015 to 58 billion Euro at the end of 2022, with a further reduction to 56 billion Euro expected by the end of 2023.
Relevant Links:
https://www.nplmeeting.it/
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