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Italian midsize banks make steady progress on NPL reduction

Midsize Italian banks made steady progress in cutting their nonperforming loan ratios between the end of March 2018 and the end of September 2019, with Banco di Desio e della Brianza SpA and BPER Banca SpA posting the largest declines among a sample of lenders with between €10 billion and €100 billion in assets.

Banco di Desio e della Brianza's ratio declined to 6.6% at the end of the third quarter from 15.21% at the end of the first quarter, while BPER's shrank to 11.63% from 19.25%.

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Apart from online brokerage FinecoBank Banca Fineco SpA, which was spun off from UniCredit SpA earlier in 2019, the lowest NPL ratio among the sampled banks was Banca Mediolanum SpA's 1.37% at the end of September. The highest was that of Banca Popolare di Sondrio SCpA, at 13.03%.

Of Italy's bigger banks — UniCredit, Intesa Sanpaolo SpA, Unione di Banche Italiane SpA, Banca Monte dei Paschi di Siena SpA and Banco BPM SpA — Monte dei Paschi posted the largest overall decline in bad debt during the period but its NPL ratio also remains the highest at 16.5%.

Aggregate numbers

In aggregate, large banks in Italy reduced their total NPLs to €93.66 billion at the end of the third quarter from €174.70 billion at the end of 2018's first quarter. Midsize banks reduced their stock to €15.75 billion from €21.20 billion.

Italian lenders across the board have taken advantage of the growing debt servicing industry in the country by getting rid of a significant amount of their soured debt.

The main drivers behind the reductions have been NPL portfolio sales and the securitization of toxic debt, spurred by the government's GACS, or Garanzia sulla Cartolarizzazione delle Sofferenzeisantee, guarantee scheme. GACS was introduced in 2016 and gave banks that wanted to securitize their bad debt a guarantee on the least risky tranche of the issuance, ultimately helping them shed billions.

At the end of September, the average NPL ratio for large banks in the sample was 9.33%, while the ratio for midsize banks in the sample was 8.91%, according to S&P Global Market Intelligence data.


Despite notable progress, banks need to increase their balance sheet clean-up before a potential economic downturn, according to Angela Gallo, a lecturer in finance at Cass Business School at City, University of London.

"The next recession is most probably coming. If that happens again, then NPLs will automatically increase," Gallo told S&P Global Market Intelligence.