The Italian banking market continues to experience challenges surrounding asset quality, capital adequacy and profitability. In July 2016, the European Banking Authority stress tests results highlighted Italy’s banking problems and the recent events have highlighted the overall fragility of the system.

The Government has implemented several reforms to address the high level of NPEs, including the GACS and the sponsorship of Atlante fund. Delayed implementation of such reforms and uncertainties connected to the Italian Constitutional Referendum and eligibility to access the Atlante fund resulted in true sales volume being lower than expected. However, 2016 total volume of disposed Bad Loans portfolios is foreseen to increase due to portfolio securitizations assisted by GACS.

Now the deleveraging path is more clear. 

In October, Banca Popolare di Bari closed the first GACS sponsored securitization. Senior state guaranteed notes equal to 88% of total proceeds from the issuance, creating a precedent for more issuances to come.

Given the successful close of the Bari transaction, many other banks are considering GACS sponsored securitizations. Among these, MPS has come to market with a €27.6bn securitization. Senior notes will benefit from the GACS, while part of the mezzanine with sub investment grade ratings is expected to be placed in the market.

It has also become clear that Atlante will not be accessible to all banks, at least in the short term. Therefore most players are now formalizing their deleverage plans without Atlante.

Other banks like Unicredit and Intesa have come to market with mixed secured and unsecured portfolio sales.

We expect 2017 transactions volume to be some €50bn. Transactions are likely to include Bad Loans as well as other NPEs, such as Unlikely to Pay and foreborne. Secured loans and loans to SMEs and Corporates are also expected to represent a significant portion of the assets sold.

All views and figures are provided by PwC