Italian Non-Performing-Exposure market: What it is changing

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The Italian Non-Performing-Exposure (NPE) market has continued to evolve. In recent years a new kind of asset has attracted the attention of credit institutions and investors. “Unlikely to Pay” (UtP) obligations refer to credits whose total repayment is considered unlikely. In such circumstances a credit institution, after a recurrent series of two or more consecutive missed repayment instalments by the debtors, could categorise the credit as being UtP. UtPs intrinsic possibility to return to perform makes this asset class technically less risky than NPLs and are typically associated with a faster recovery.

  • UtPs have shown a consistent growth trend since 2019, overtaking the Non-Performing-Loans (NPL) market capitalisation in 2020. It is expected that the NPE market(1) would reach EUR 440bn this year, with UtPs representing about 25% of it. Slower than expected recoveries, end of moratoriums and the European Central Bank (ECB) re-establishment of the capital provisioning requirements for Italy are the main drivers of this growth of the NPE market.
  • UtP obligors are predominantly SMEs, hence the market mirrors the economic geography of the country. Northern regions hold more than 60% of this debt, with the peak of 21% in Lombardy, while the rest of the country shows lower concentration. Furthermore, the largest three credit institutions (UCG, Intesa Sanpaolo, BPM) hold about 60% of the assets and the top 10 banks control the market.
  • According to the Italian Central Bank estimations c.15%-22% of UtPs return to perform, while the remaining are likely to fall into the NPL category. Italian financial authorities along with the government, are promoting a tighter collaboration between firms, banks, investors, and the local legislators.

(1) Term used by regulatory authorities to denote a market formed by lending contracts or other counterparty exposures that are problematic in the sense of unexpectedly deviating from contractual cash flows due to counterparty behavior. In Italy the market is formed by NPLs, UtPs, PPCs (negligible amount)



30 May 2022



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