Italy is a leader in Europe in the fight against private debt. This is an extreme summary of the most recent report on the subject prepared by the Bancassurance Research Office. In December, the amount of bad loans, i.e. those that banks are unable to collect for various reasons, will decrease by 71 billion to 290 billion compared to 2015.
In the first half of 2024, the cumulative stock of NPEs (non-performing exposures) of the main European banks increased by 16 billion euros: this is the amount of bad loans held by the Italian banking system, divided into three past due macros. has gone categories (overdue and bad loans), UTP (not likely to be paid, i.e. overdue loans that are difficult to recover) and non-performing loans (bad loans, facing parties in insolvency);
NPEs rose from €357 billion in March 2023 to €373 billion in June 2024. At the same time, the NPE ratio, i.e. the ratio between bad credit and the stock of loans, also increased by 11bps, from 1.75%. 1.86 percent from early 2023 to June 2024.
The increase in non-performing loans recorded by German banks (+9.4 billion euros) and French banks (+8.8 billion euros) in the period mainly contributed to these figures. Moreover, the general framework of economic uncertainty and inflationary stress has led to a moderate increase in the cost of risk for the main EU banks: it reached a level of 0.51% on 30 June 2024, which in 2024 reached its highest level since the end of 0.57% in the first quarter of 2020.
On the other hand, thanks above all to the de-risking process initiated by Italian banks and the public policies to support business, Italy featured a trend opposite to the European average, with a significant increase in NPE stocks. A decrease was recorded, falling to 5.1 billion. euro between the first quarter of 2023 and June 2024, thus consolidating a trend throughout the Italian banking system that shows a reduction of around 290 billion euros from 2015 to 2024.
The volume of NPEs transactions continues to decrease: in 2024, it is estimated that around 24 billion euros of NPLs and UTPs will be transacted. The market will be active in the two-year period 2025-2026, during which the volume of NPL transactions is estimated at around 18 billion euros per year and around 5 billion euros of UTPs, which will allow banks’ NPE ratios. 3% limit. Low number of transactions is leading to limited increase in portfolio prices.
The state of health of the Italian banking system can also be seen in comparison to other European countries, according to the Ifil report, by the trend of bank loans classified in stage 2. If we look at the total stock of NPEs – banks and investors – in Italy, a decrease of around 71 billion euros is estimated from 2015 to 2024, this decrease is expected to be 84 billion euros in 2026, which at system level is equal to -23%. The most exposed sectors appear to be construction, transport, trade and tourism.
Moreover, our country’s main banks show a significant reduction in the Stage 2 ratio, which goes from 11.5% at the end of 2023 to 9.4% in June 2024, closing the gap with the European average. The result is in contrast to Germany and France, where insolvent debts rose by 9.4 billion and 8.8 billion respectively.
A bank classifies and accounts for its loans based on the difficulty of their balance sheets. We speak of stage 1 for those credits that show no significant risk to their collection, stage 2 for those that show a higher collection risk than at the initial moment, stage 3 Talk to those who highlight the tangible risk of non-collection. However, the Ifis report only takes into account the latter, which are classified as non-performing loans. What is not clear, however, is the recent modification to the geometry of Stage 2. “This is a big change for banks” explained Giuseppe Carteni, a lawyer at QuiFinanza’s LEAD law firm.
Courtney, what’s happening to the banks?
After several years of balance sheet cleanup, banks have increased their capital capacity to keep the loans in their stomachs, which, although high risk, are still recoverable, for now, they said. There is no strict disposal requirement, due to the restrictive regulation of the EU.
How was it possible to reach this point?
This change was certainly made possible by the high profitability of the banking system which, among other things, has performed very positively in the past two years thanks to the rise in interest rates. Banks can therefore increase the containment basin of loans in Stage 2 today, which are now sufficiently interest-bearing markets, for their potential disposal, if necessary, before placing them in Stage 3.
But what does this mean in concrete terms? What will be its impact in the near future?
I do not believe that the increase in Phase 2 lending will lead to a decline in the banking system’s ability to provide credit, as it has in the past, because of banks’ improved capital and earnings capacity.
So what should we expect?
I believe that the provision of mortgages will, rightly, be commensurate with the ability of the financial institution to repay the capital paid to the bank with interest.
Servicer reform deserves a separate discussion…
Yes, Italy has implemented the so-called SMD (Secondary Market Directive), 2021/2167, for European-wide regulation of the secondary market for non-performing loans, to widen the audience of potential buyers of NPLs. However, at the same time, it has limited the number of potential operators authorized to manage them.
And what are the consequences?
In principle, the new regulation should also have a positive impact on the disposal of stocks of credits in the secondary market, but I will wait to see the concrete effects before making a final decision.
