NPL Recovery Rates

Bankit Financial Stability and Supervisory Notes

In the last Financial Stability and Supervisory Notes the bank of Italy updated to 2023 its estimates of recovery rates for non-performing loans, a measure that the institution has been tracking since since 2017. The report also includes the results of the annual survey on sales of loans classified as non-performing conducted since 2016 by the Bank.

In 2023, non-performing positions of about EUR 9 billion were closed (eliminated from the balance sheets). This figure, equal to about 1.6 times the value of new entries, is lower than in 2022 both in absolute terms (€22bn) and as a percentage of non-performing loans outstanding at the end of the previous year (44% vs. 64%).

The reduction compared to 2022 was mainly driven by disposals (down from €18bn to €5bn) and is attributable to the gradual downsizing of outstanding amounts, which reduced the need for massive disposals and enabled the adoption of impaired loan management strategies based on a more balanced contribution from other management levers, such as internal recovery.

The improvement in disposal times underway since 2015 continues, benefiting both from the reduction in outstanding amounts and low rates of entry into non-performing loans, and from the progress achieved by intermediaries in managing these loans. Updated data show that the share of positions closed within three years of classification as non-performing is 88%, the highest value observed so far.

Compared to previous years, the use of securitisation as a proportion of total disposals was limited, also in view of the fact that GACS are no longer available as of 14 June 2022. Unlikely to pay exposures sold decreased to EUR 4 billion, down EUR 3 billion from 2022.

Recovery rates of closed non-performing loans

Compared to 2022, the average recovery rate increased (from 34% to 36%) as a result of the lower proportion of transferred non-performing loans to the total (from 81% to 60%); however, the indicator decreased both on transferred positions (from 32% to 30%) and on positions closed out in the ordinary way (from 47% to 45%).

The average recovery rate of non-performing loans backed by collateral increased to 41% (from 40%); the reduction in the recovery rate of positions sold to third parties (from 38% to 35%) was offset by a higher incidence of positions closed out in the ordinary way, whose recovery rate is substantially stable (50%). The same trend was observed for positions not backed by collateral, the recovery rate of which increased overall by about one percentage point (to 28%), despite a reduction in recovery rates on both positions closed out in the ordinary way and those sold.

Transfer prices of impaired loans

The price of non-performing loans sold in 2023, derived on the basis of the annual survey conducted since 2016 on a very large sample of transactions, averaged 22% of the gross balance sheet exposure at the time of the sale, essentially stable compared to 2022 (21%). The price increased for secured positions (by 2.5 percentage points to 34%), while it remained stable for unsecured positions, whose price was 12%.

The transfer price of impaired loans other than non-performing loans, characterised by a high variability across transactions, averaged 47%, some 13 percentage points higher than in 2022; the increase affected both the secured and unsecured components.

In conclusion, the data presented in the "Note di Stabilità Finanziaria e Vigilanza" No. 43, December 2024, offers valuable insights into the evolving dynamics of non-performing loans (NPLs) in Italy. The year 2023 marked significant progress in managing NPLs, with a notable reduction in outstanding volumes and a shift towards more balanced management strategies. The improved recovery rates, particularly for positions assisted by real guarantees, reflect the ongoing optimization of credit recovery processes.

The gradual decline in market transactions, partly influenced by the cessation of GACS in 2022, underscores a transition towards internal recovery methods. Meanwhile, the stability in pricing and enhanced efficiency in closing NPLs—especially within shorter time frames—highlight the resilience and adaptability of Italy's financial institutions. As challenges persist, the emphasis on sustainable credit management remains pivotal to ensuring the long-term stability of the financial system.

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Relevant Links:

https://www.bancaditalia.it/media/notizia/note-di-stabilit-finanziaria-e-vigilanza-n-43-i-tassi-di-recupero-delle-sofferenze-nel-2023/?dotcache=refresh&dotcache=refresh

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