To the rescue...How Italy's NPE Market is morphing into a UTP Market and why only the fittest will survive


The Non-Performing Exposure (NPE) Italian market remains the largest and the most active in Europe*, generating interesting investment opportunities for institutional investors who are active in alternative investments and private markets.

We are now witnessing a significant shift from Non-Performing Loans (NPLs) to Unlikely-to-Pay bank loans (UTPs). UTPs are a completely different play than NPLs, and only operators with adequate expertise and advanced technological know-how stand to benefit from the ongoing transformation of the Italian NPE scene. Here is why.

Italian banks have accomplished an incredible deleveraging plan starting in 2015, when the gross amount of NPE picked at €340+ Bn1. By the end of 2021 the total NPE was calculated to have reduced to €78 Bn, of which €45 Bn of UTPs and €33 Bn of NPLs2. Between 2015 and 2021, deleveraging was focused towards NPLs, and a key role was played by the GACS3 scheme. In a nutshell, GACS is Italy’s public guarantee issued in favour of investment grade senior tranches of public NPL securitisations. Arguably, it was GACS which re-started a rather sleepy public securitisation market. Almost €100 Bn of Gross Book Value (GBV) have been deleveraged through GACS so far4

The industrial transformation of NPE managers to an integrated and scalable platform approach

The total stock of NPE sold to investors and still seated in Italian banks balance sheet is worth €400+ Bn, with exposure to real estate accounting for more than 50% of the stock and with corporate borrowers accounting for more than 80% of the total, mainly small and medium-sized enterprises5 (SMEs). NPE disposals for about €47 Bn of GBV are expected for 20226. The consequence has been a deep industrial transformation of the industry in the management of the NPE,  including the real estate as collateral of the distressed loans.   

The role of UTPs today warrants particular attention. These days more than 130,000 companies are classified as UTPs and, according to PwC7, the new NPE flows will primarily be small and medium-sized enterprises belonging to the sectors most affected by the crisis. These NPEs will require ad-hoc management by the banks. The changed regulatory context (first of all, the calendar provisioning) and the characteristics of the expected NPE inflows will not allow banks to behave as they did during the previous crisis, accumulating non-performing loans on their books for years and disposing of them with the help of solutions such as GACS. 

Technology, data management and early intervention in company crises as key drivers for facing the next NPE wave   

The existing macroeconomic setting creates a large market for specialty lenders and direct lending, mainly to support SMEs which are the backbone of the Italian economy. Invoice trading, factoring and alternative lending are the fields where we can see interesting opportunities of growth. However be mindful that most new flows will be UTPs. As such, they will be “live” loans and will require ad-hoc management by the banks. These exposures will need to be managed and guided not only by a financial institution but, above all, by an industry logic. They must be managed through a mixed perspective of recovery, turnaround and private equity. It is vital to have proactive credit management once the first sign of a company crisis arises (preferably starting from Stage 2, which peaked at €220 Bn GBV at the end of 20218) and to support the borrower to overcome the negative phase they are facing. Very few operators possess this combination today. Importantly though: NPL credentials provide no guarantee of success in the UTP space.  

Last but not least: the credit management industry is still a human-intensive business. The industry as a whole needs to strongly invest into digitalisation and data management/valorisation. Only operators who take that seriously will be in a position to thrive and deliver substantial value.  

Riccardo Serrini, CEO and General Manager, Prelios Group  

*White& Case, COVID-19 and the state of the European NPL market, April 2021 
1PwC, The Italian NPL Market, Transformation at Work..., December 2021 
2Banca Ifis, Italian NPL sales fall to €33bn last year, Februray 2022 
3Garanzia sulla Cartolarizzazione delle Sofferenze 
4PwC, The Italian NPL Market, Transformation at Work..., December 2021 
6 Banca Ifis, Italian NPL sales fall to €33bn last year, Februray 2022 
7PwC, The Italian NPL Market, Transformation at Work..., December 2021 
8 Ibid. 

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