Italy's nonperforming loan sales sector is ripe for a broad-based expansion, as the volume coming to the secondary market in second half is set to be more than double the amount seen in the first six months of the year, according to Banca IFIS SpA.
Venice-based Banca IFIS estimated that €70.9 billion in NPLs would be sold in Italy in the rest of the year, after €33.1 billion changed hands by the end of June.
The gross volume of NPL sales was 192% higher in the second quarter of 2017 than in the first quarter, and additional sales of €32.4 billion are near closing. NPL transactions are "about to explode," the bank said.
The profile of the typical buyer is also changing, with local investors increasingly featuring alongside multinational firms that were previously seen as the main buyers of Italy's toxic assets.
"In 2017, domestic buyers are starting to show a strong interest for Italian nonperforming loans," said IFIS, which was itself the top buyer of NPLs in 2015 and 2016, and expects to be the third-largest in 2017, after Quaestio Asset Management, the custodian firm of the Atlante bank rescue fund, and a partnership between asset managers Fortress Investment Group LLC and Pacific Investment Management Co. LLC.
Among the sellers, UniCredit SpA will unload the most soured loans, with a total of €20.9 billion scheduled for 2017, much of it from the so-called FINO operation — short for "failure is not an option." Banca Monte dei Paschi di Siena SpA is in the process of selling a €26 billion portfolio as part of its bailout agreement with regulators.
Pricing, which has been seen as an obstacle hindering Italian banks' ability to off-load bad debt and improve asset quality, is displaying mixed tendencies depending on the category of loan, IFIS said. Secured assets are increasingly discounted, while consumer debt portfolios are becoming more expensive.
Mortgages and other secured loans sold for roughly 33% of book value in the second quarter of 2017, down from just over 43% at the end of 2016. Consumer debt is selling for 11% of book value currently, up from around 8% at the end of 2016. The segment of portfolios combining retail and corporate loans is going through a phase of price recovery, Banca IFIS said, with data showing two consecutive quarters of average price growth, to more than 13% projected for the third quarter, up from a bottom of about 6% in the first quarter, but still some way down from the more than 20% registered in the third quarter of 2016.
Despite the efforts of lenders and the Italian state to clean up junk debt from the financial system, asset quality has slightly worsened in recent months, according to Banca IFIS figures. The gross amount of NPLs held by banks and intermediaries edged up to €270.4 billion at the end of March 2017, from €266.9 billion at the end of 2016 and €262.4 billion in the first quarter of 2016.
According to S&P Global Market Intelligence figures, nonperforming exposures, which include loans that are unlikely to be paid and those that have been recently restructured, went up to €325.5 billion in the first quarter. This was 16.27% of the total, up from 16.20% at the end of 2016.
Corporate bad loans have increased more sharply than retail loans since 2011, IFIS found. At the end of March 2017 lenders sat on €160.7 billion in bad loans from companies, up from €73.6 billion at mid-2011. Over the same period, retail bad loans increased to €37.6 billion from €22.8 billion.
Construction firms accounted for more bad corporate loans than all other sectors of the economy, at 26.2% of total stock at the end of March. Manufacturing was responsible for 18.6% of nonperforming loans, commerce in goods for 15.5% and real estate for 15.4%.