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How to solve Italy’s impasse on NPL pricing

At the fifth annual International NPL Meeting in Venice last month, investors, Italian banks, investment funds and servicers debated the pricing gap hampering portfolio sales. The country’s banks have some bitter pills to swallow, writes Marcel Le Gouais

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During the summer months there were several speculative, albeit informed pronouncements on whether Italy’s non-performing loan (NPL) problem was about to erupt.


As Credit Strategy covered in its March issue, all the ingredients are bubbling under the surface, starting with 340-360bn Euros of NPLs sitting on the balance sheets of Italy’s biggest banks.


Italy’s levels of NPLs are three times the EU average, and this startlingly fragile position is against a backdrop of an economy showing a weak growth rate and a prolonged fall in house prices.


But so far, such an eruption worthy of Mount Vesuvius is hardly evident. More generally the signs so far show that if anything, Italy’s NPL market will very slowly but surely gather momentum.


There are of course all sorts of reasons why, with the cumbersome court processes in Italy being just one. Repossessions can take up to a decade and according to research by European consultancy firm Ecorys, Italian bankruptcy proceedings last an average of 7.8 years, compared to an average of about two years for the rest of Europe.


Another vital point of impasse, as often is the case, is a gap in expectations over pricing.


This was one of the themes that emerged at the International NPL Meeting in Venice on September 16, organised by Italian bank Banca IFIS – which itself buys and sells NPL portfolios.


A step change in how Italian banks are managing their NPL stocks also emerged at the conference.


Such measures include a reinforcement of their internal recovery units through investments in operating models for sub portfolios and adaptations of their recovery strategies, with higher recourse to settlements.


Banca IFIS remains a key player in bringing together investors, servicers and banks, and the head of its NPL division, Andrea Clamer, will be speaking at our own CDSP conference in Manchester this November.


See Credit Strategy’s November issue for the full article on p34.

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