home  › Markets

The outlook for NPL is finally brightening, says the latest Outlook by ABI-Cerved

by Vittorio Nuti

The overall picture of Italian non-performing loans is improving, according to a report by ABI and Cerved. The decline in the rate of NPLs started in 2015 is continuing, and is expected to reach pre-crisis levels in 2017, the lowest since 2009, thanks to the improved Italian economy.

The ABI-Cerved Outlook says the rate of new non-performing loans of small and big companies compared to the total of good loans will drop this year to below 3%, before declining to 2.4% at the end of 2017, compared to 1.7% before the crisis.

According to the study (which analyses companies' new NPLs, but not the stocks of bad loans), the percentage of loans of non-financial companies that become non-performing has dropped from 3.7% in 2015 to 3% in 2016, and is expected to fall to 2.4% at the end of 2017.

This is the lowest level since 2009, although it remains above the level of 2008 (1.7%).

In the industrial sector, the rate will return to pre-crisis levels, according to the Outlook.

In terms of sectors, the report gives reasons for optimism in particular for industrial groups, where the rate of NPLs is expected in 2017 to be very close to pre-crisis levels, reaching 1.9%, one decimal point higher than in 2008.

For small industrial companies, the percentage of bad loans is higher than before the crisis, while new NPLs of small, medium and big manufacturing groups are expected to be below 2008 levels.

In the construction sector, the Outlook forecasts an improvement (rates will drop from 5.8% in 2015 to 3.9% in 2017), although still far from pre-crisis levels.

In the services sector, the rate will decline to 2.1% (from 3.5% in 2015), although it will remain 0.6 percentage points higher than in 2008. In geographical terms, the forecasts show that the gap is narrowing, with a stronger improvement in central and southern Italy than for the businesses in the north.

Despite the widespread improvement, businesses in northeast and northwest are still seen as less risky (with rates of 1.8% and 1.9% respectively), while those in central and southern Italy will remain more exposed to risk (2.8% and 3.6% respectively).

None of the four geographical areas will show a reduction of the rate of NPLs to below pre-crisis levels.

“The decline in new NPLs forecast in the coming years represents an important factor in the solution of the problem of impaired loans, but much remains to be done,” said Cerved Chief Executive Marco Nespolo. “It's necessary to quickly reduce the stock of NPLs through disposals to specialized operators: in this respect, it will be important that the newly-approved rules be successful in speeding up the timing of debt collection, in order to increase valuations for those who invest in bad loans,” he said.

“The most recent data and projections on new NPLs confirm the physiological nature of the problem, considering that their improvement follows the recovery of the macroeconomic scenario,” said ABI Director General Giovanni Sabatini. “The issue of a more rapid reduction of the stock of NPLs piled up during the crisis and the additional initiatives and measures put in place provide an important contribution to reduce the amount of impaired loans,” he said.