Non-performing loans (NPLs) are classified into categories characterized by a different degree of difficulty of the borrower. Unlike bad loans, Unlikely to Pay loans (UtPs) present a nonnegligible probability of returning to the performing status. The paper uses data from the Italian Central Credit Register from 2005 to 2019 to estimate both the probability that UtP firms return to the performing status and the characteristics most associated with this return.
The analysis shows that the share of UtP firms returned to the performing status has never been negligible even during the most acute phases of the global financial and sovereign debt crises; therefore it provides insights also in the context of the current pandemic crisis. The probability of an UtP firm to return to the performing status is negatively correlated with its size and debt value and positively with the ratio between capital and assets, measured at the time of the UtP classification.