Hannah Ogunlowo: Has the amount of outstanding Italian NPLs improved since reform efforts began, or have we seen a decline in scale and credit quality of the loans?

Federico Sutti: In the last months we have seen a significant increase in the volume of NPLs sold by Italian banks. It is important, however, to mention that the actual value of these NPLs is quite below the GBV shown in all publicly available statistics.

According to a recent obligation of Bank of Italy (Banche e Moneta: serie nazionali), the gross value of sofferenze has gone down from 92 billion to 73 billion, while the relevant net value has gone down from 71.2 billion to 65.8 billion.

Therefore, indeed the real outstanding stock of NPLs in Italy is now significantly lower than it was two years ago, and lower than what it appears to be, even if the total volume remains one of the most important in Europe.

It is also worth mentioning that, out of the total stock of NPLs, more than 50% is, technically speaking, distressed (“sofferenze” i.e. already in litigation and/or under insolvency procedure). The remaining 50%, however, is still either forborne or, generally speaking, in light restructuring (e.g. under a procedure ruled by article 67 or 182 bis of the Italian bankruptcy law).

For all these positions the real potential is, on the one side, the possible higher recovery of the underlying assets and, on the other side, the chance of preventing that these positions become themselves, technically speaking, distressed.

This is the area where equity and debt investors have probably a bigger role to play in the near future and where they can create value also for the banks.

HO: What is the impact of the reforms and ongoing challenges to Italian NPL disposals?

FS: The recent changes, implemented for the Italian civil procedural code in particular, as far as the foreclosure is concerned, have indeed sped up the timing of the procedures.

The volumes of traded NPLs have substantially increased in the last two years; taking into account the numbers that major banks have put on the market in 2017, the total figure might be in the range of more than €40 billion of assets sold.

The main challenge, in the short term, will be the ability of the service providers to process all these positions considering that, until a couple of years ago, the average volumes were in the range of €4/5 billion, and therefore also the organization of these service providers was much smaller.

Another challenge might be the capacity of the market to “absorb” all these assets when worked out and, in particular, those with an underlying real estate property that, according to the Bank of Italy, does represent almost 50% of the entire stock of NPL’s.

As far as the well-known Patto Marciano is concerned (i.e. the ability to agree a sort of contractual accelerated repossession of the asset), we still need to wait a couple of years to see the benefits of its implementation to a number of recently restructured positions.

Federico Sutti Italy Managing Partner Dentons Bio

If you would like to hear more from Federico he will be speaking on the panel: Generating returns from non-performing loans in Italy at the Italian Restructuring Forum, part of Debtwire Week, on 11 October in London. Find out more about how to get involved here. 

Hannah Ogunlowo Speakers Acuris

Hannah is responsible for speakers and event programmes at Acuris. She leads content for Debtwire's European fixed income events and Mergermarket's M&A events in Italy, Germany, MENA, UK and South Africa.