(Finance) – The Italian authorities should continue to monitor and promote the secondary market for impaired loans“Also resisting measures that would undermine past success“, while the Bank of Italy should continue to strengthen supervision of relevant supervised entities, including servicers. This is the main recommendation of the Financial Stability Board (FSB)which today published the Peer Review of Italy, a report examining the progress Italy has made so far in reducing non-performing loans in the banking sector.
The analysis shows that the Italian authorities have achieved significant results in reducing non-performing loans on bank balance sheets. From the peak of 360 billion euros in December 2015, i gross impaired loans they fell to €63 billion in June 2023, with the gross NPL rate falling from 16.5% of total loans to 2.8% over the same period. Accounting and regulatory measures, close cooperation between national authorities, the development of the secondary market for NPLs, including through the introduction of a public guarantee scheme on the securitization of bad debts, and the review of judicial and extrajudicial restructuring and enforcement procedures have contributed significantly to this success.
“The concerted efforts of the Italian authorities to address the high levels of NPLs in the areas of regulation, supervision, accounting, development of a secondary market system and the reform of judicial processes provide a useful framework for other jurisdictions who may face similar problems in the future,” commented Ryozo Himino, chair of the FSB’s Standing Committee on Standards Implementation (SCSI).
Now that the Guarantee on the Securitization of Bad Loans (GACS) has finally expired after several extensions and is not expected to be reactivated as it is not needed in the current context, and the stock of bad debts largely reduced, the focus of banks’ balance sheet management is now on the portfolio of Unlikely To Pay (UTP). Compared to distressed loans, where debtors are insolvent or in substantially similar circumstances, the sale and renegotiation of UTP loans involves different considerations and responsibilities for banks, investors and servicers for debt management and, if necessary, resolution and enforcement. “In the current macroeconomic environment, it is imperative that market mechanisms for the sale and securitization of NPLs do not weaken and that authorities continue to monitor and take measures to maintain a robust secondary market for NPLs,” it said. relationship.
The review suggests that, to address the persistently long duration of enforcement procedures, Italian authorities should: increase court resources and staff, especially in those facing the most serious backlogs; strengthen the specialization of courts in commercial matters and, where possible, in insolvency matters and in particular in law enforcement matters; finalize the ongoing digitalisation of the justice system, which will involve the introduction of an electronic tracking system that would allow the performance of courts to be monitored and appropriate incentives to be established.
Furthermore, the authorities should carefully monitor the insolvency system, restructuring and enforcement and ensuring that it achieves its objectives, including through: the provision of sufficient human resources and adequate training of the experts involved; and collect adequate data to monitor use and outcomes across processes.
(Photo: © Veerasak Piyawatanakul)