Deloitte Survey on Italian Non-Performing Loans Outlook

Transcription

1 Deloitte Survey on Italian Non-Performing Loans Outlook Milan, July 8th

2 Summary of survey results After two years from its previous edition, the survey highlights: A further worsening of credit quality and the postponing of the economic recovery. An endurance of the same critical factors hindering the successful closing of NPL transactions. A willingness to find an industrial solution to the problem. An unvaried outlook on the market from the banks perspective. The ball is not moving 2

3 Banks expectations about NPL growth UNTIL WHEN NPLs WILL CONTINUE TO GROW 27,3% 27,3% 36,4% 9,1% The majority of banks expects NPL stocks to continue to grow for at least two years more. Until 2014 Until 2015 Until 2016 Beyond 2016 FACTORS THAT WILL INVERT THE TREND 0% 25% 50% 75% 100% Acceleration in real GDP growth Reduced credit demand Real estate sector recovery Fall in unemployment rate The main factor that will contribute to the reversal of this trend is the macroeconomic recovery. Reduced credit supply 3

4 80% of banks declared a change of their NPL management strategy in the last two years REASONS EXPLAINING THE CHANGE IN STRATEGY NPL volumes increase 0% 25% 50% 75% 100% Undersized internal facilities Further deterioration of economic context Bid-ask spread reduction Changes in regulatory environment (AQR) Rather than implications from the AQR process or the market s expectations (i.e. bid-ask spread reduction), the key driver explaining the strategy change is the will to cut direct and indirect costs associated with NPLs. Future NPL disposals will not be driven exclusively by the difference between market value and current book value. 4

5 How banks intend to manage the problem of NPLs over the next 24 months 33,30% 44,40% Partly managing in house and partly in outsourcing 22,30% Outsourcing debt collection Selling NPL portfolios In order to tackle the problem posed by NPLs, banks look at collection outsourcing and sale of these assets. BENEFITS OF OUTSOURCING: Increase in collections rates associated to a reduction in provisions. Collections costs almost variable and linked to effective collections. Improvement of portfolio data quality. Possibility to sell in the future at price conditions better than today, also due to improvement to data quality. 5

6 Main reasons for portfolio disposals Recovery of profitability Removal of overhead expenses RWA reduction The recovery of profitability is the main reason for selling NPL portfolios. The reduction of NPL management costs has emerged to be as important as RWA reduction. 6

7 What constitutes the biggest barrier to completing an NPL portfolio sale? Bid-ask spread 0% 25% 50% 75% 100% Low portfolio data quality Timing and complexity of legal workout Speculative approach of investors FACTORS THAT WILL FURTHER REDUCE THE GAP The bid-ask spread is confirmed as the principal barrier preventing the completion of NPL portfolio sales, but the gap is narrowing thanks to: Lower IRR required by investors (country risk premium reduction, interest rates at minimum, competition among investor). Further provisions on banks portfolios deriving from AQR process. 50,0% 50,0% More favourable fiscal legislation Adoption of the "Bad bank" model Banks are equally split between the approval of a more favorable fiscal legislation and the adoption of the bad bank model in the future, as triggers of a further narrowing of bid-ask spread. 7

8 NPL volume in nominal terms (GBV) that banks expect to sell within 2015 and disposal strategy 10% 35% 35% 0 mln mln mln 15% 5% bln Above 1 bln Over the next 24 months, 70% of the credit institutions interviewed expects to dispose of a maximum NPL volume of Euro 500 mln in terms of GBV. This means that the overall disposal will be included in a range of Euro 10 and 16 billion over this period. DISPOSAL STRATEGY THAT BANKS FORESEE TO ADOPT Auction Bilateral negotiation Other Banks foresee to adopt competitive bidding processes to dispose of NPLs, and only a modest percentage is oriented to bilateral negotiations. In most cases, credit institutions are willing to offer financial support to potential investors of NPL portfolios (e.g. vendor financing). 8

9 Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see deloitte.com\about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.