This note:
- updates to 2023 the estimated bad loan recovery rates already published in previous issues of the Notes on Financial Stability and Supervision starting from 2017;
- illustrates the results of the yearly survey on NPL sales, conducted by the Bank of Italy starting from 2016.
The analysis reached the following main conclusions.
Closing of bad loans and unlikely-to-pay loans
- In 2023, bad loan positions amounting to around €9 billion were closed (i.e. derecognized from banks' financial statements). This amount, which is around 1.6 times higher than that of newly-classified bad loans, is lower than the one recorded in 2022 both in absolute terms (€22 billion) and as a percentage of bad loans outstanding at the end of the previous year (44 per cent, against 64 per cent).
- The decrease compared with 2022 is mainly attributable to sales on the market (from €18 billion to €5 billion) and explained by the progressively lower stock of bad loans, which reduced the need for massive disposals and allowed for the adoption of strategies for managing non-performing loans based on a more balanced contribution from other management levers, such as internal recovery.
- The improvement underway since 2015 in the time to close bad loan positions has continued, benefiting from both the reduction in the stock of bad loans due to lower inflows and the progress achieved by banks in the management of these loans. The latest data indicate that the share of positions closed within three years of their classification as bad loans is 88 per cent, the highest value observed so far.
- Compared with previous years, securitizations as a share of total sales were limited, partly owing to the fact that, as of 14 June 2022, the guarantees on the securitization of bad loans (GACS) are no longer available.
- The amount of unlikely-to-pay loans sold on the market was €4 billion, down by €3 billion compared with 2022.
Recovery rates of bad loans closed
- Compared with 2022, the average recovery rate increased (from 34 to 36 per cent) due to the lower share of bad loans sold on the market (from 81 to 60 per cent); the rate however decreased on the positions sold on the market (from 32 to 30 per cent) as well as on those closed using standard recovery procedures (from 47 to 45 per cent).
- The average recovery rate for bad loans secured by collateral increased to 41 per cent (from 40 per cent); the reduction in the recovery rate on bad loans sold to third parties (from 38 to 35 per cent) was counterbalanced by the higher share of bad loans closed using standard recovery procedures, whose recovery rate is substantially stable (50 per cent). The same trend was observed for the unsecured positions, whose recovery rate increased by around 1 percentage point (to 28 per cent), despite a reduction in the recovery rates both on bad loans closed using standard recovery procedures and on those sold to third parties.
Sale prices of non-performing loans
- The price of bad loans sold in 2023, calculated on the basis of the annual survey conducted since 2016 on a very large sample of transactions, was equal to 22 per cent of the gross book value at the time of sale, substantially stable compared with 2022 (21 per cent). The price increased for bad loans secured by collateral (by 2.5 percentage points to 34 per cent), while it remained stable for unsecured positions, at 12 per cent.
- The sale price of non-performing loans other than bad loans varied greatly across transactions and averaged 47 per cent, 13 percentage points higher than the value observed in 2022; the increase concerned both the secured and the unsecured component.
