This note:
- updates to 2021 the estimated bad loan recovery rates already published in the previous issues of the Notes on Financial Stability and Supervision since 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.
The reduction in the stock of bad loan positions
- In 2021, €17 billion worth of bad loan positions were closed (i.e. derecognized from the banks financial statements). This amount, despite being lower than what was recorded in the previous years (€25 billion in 2020), is more than double that of newly-classified bad loans (€7 billion) and, as a percentage of bad loans outstanding at the end of the previous year, is higher than the figure for 2020 (42 against 38 per cent).
- The decrease from 2020 is mainly attributable to the lower sales volumes on the market (from €20 billion to €14 billion) and broadly reflects the contraction in the stock of these loans on the banks' balance sheets.
- The improvements regarding the time taken to dispose of bad loans, underway since 2015, are continuing and reflect the progress achieved by the banks in terms of a more proactive management of these loans. For the positions classified as bad loans in 2015, the share of loans closed within six years was equal to 94 per cent of the total, the highest value recorded in the survey period; the increase in the number of positions closed within one or two years from becoming bad loans was especially significant, rising to 61 and 71 per cent respectively.
- The Guarantee on Securitization of Bank Non Performing Loans (GACS) assisted all the main transactions (€9.3 billion, 88 per cent of the securitized bad loans).
- The amount of loans classified as unlikely-to-pay sold on the market was €5.7 billion (€6.7 billion in 2020).
Recovery rates of bad loans closed
- Compared with 2020, the average recovery rate for the positions sold on the market decreased (from 33 to 29 per cent); the decline is mainly attributable to a limited number of large-amount transactions involving bad loans with high vintage and low quality of the underlying assets, which recorded lower than average recovery rates. For the positions closed using standard recovery procedures, the average recovery rate remained broadly unchanged (45 per cent).
- The average recovery rate for bad loans secured by collateral decreased to 38 per cent (40 per cent in 2020), exclusively due to the reduction observed on the positions sold (from 38 to 34 per cent), while it increased on internally managed positions (from 48 to 50 per cent). For unsecured positions, the average recovery rate was 25 per cent, down from 26 per cent a year earlier, both on bad loans sold to third parties (from 23 to 22 per cent) and on those closed using standard recovery procedures (from 38 to 35 per cent).
Disposal prices of non-performing loans
- The price of the bad loans sold in 2021, calculated on the basis of the annual survey conducted since 2016 on a very large sample of transactions, was equal to 20 per cent of the gross book value at the time of sale, down from 24 per cent in 2020. The decrease, as already highlighted for the corresponding recovery rate, is attributable to a limited number of large-amount transactions which mainly concerned bad loans secured by collateral, for which the price fell to 29 per cent (35 per cent in 2020). For unsecured bad loans, the price increased to 11 per cent from 10 per cent in 2020.
- The disposal price of non-performing loans other than bad loans was equal to 40 per cent, in line with the price observed in 2020.
