The Bank of Italy released one new Note on Financial Stability and Supervision (Note No. 13).
This note updates to 2017 the estimated bad loan recovery rates already published for the period 2006-16. The data, together with some detailed breakdowns that are commented on but not reproduced in this text, are available in digital format. Moreover, for the first time the note illustrates the results of the Bank of Italy’s surveys on NPL sales that began in 2016, whose findings are in line with what can be inferred from the Central Credit Register.
Our analysis reached the following main conclusions.
- In 2017 the overall amount of closed bad loan positions reached its highest level since 2006 (€43 billion, as against €17 billion in 2016), mainly owing to the increase in sales on the market. For the first time, this value was higher than that of newly classified bad loans, in part thanks to the gradual reduction of the latter.
- Increases were recorded in the recovery rate of bad loan positions sold on the market (from 23 to 26 per cent) and of those closed using standard recovery procedures (from 43 to 44 per cent). However, as a result of the significant increase in the share of sales on the market (76 per cent of the total, compared with 45 per cent in 2016), the average recovery rate came to 30 per cent, as against 34 per cent in 2016. If the proportion of positions sold on the market had been similar to that of 2016, the average recovery rate would have been 36 per cent.
- The average recovery rate for bad loans secured by collateral came to 39 per cent. For the positions sold the rate fell (from 37 to 33 per cent) while for positions closed using standard recovery procedures it rose (from 54 to 55 per cent).
- For the unsecured positions the average recovery rate was 21 per cent. This rose from 15 to 18 per cent for bad loans sold to third parties and declined slightly for positions closed using standard recovery procedures (from 32 to 31 per cent).
- The gradual increase in the speed of disposal of bad loans has continued. The ratio of the amount of bad loans closed each year to the stock outstanding at the beginning of the period, which in 2013 had reached a low of 6 per cent, came to 23 per cent in 2017 (as against 9 per cent in 2016). The amount of positions closed using standard recovery procedures exceeded €10 billion.
- The price of the bad loans sold in 2017, calculated based on the annual survey conducted starting in 2016 on a very large sample of operations, was equal to 17 per cent of the gross book value at the time of sale (15 per cent in 2016). The price averaged 26 per cent for bad loans secured by collateral and 10 per cent for the others. It is worth recalling that part of the difference between the recovery rates and sale prices stems from the fact that the former (which are higher) take account of the cash flows ('partial' recoveries) collected in the period prior to the closure of the position.