MILAN (Reuters) – The Bank of Italy has been collecting data on how efficiently the unpaid loans sold off by banks are being recouped, reflecting concerns about slow progress and the potential fallout for taxpayers, two sources familiar with the matter said.
Pushed by European supervisors to clean up their balance sheets after a brutal recession, Italian banks have shed some 180 billion euros ($198 billion) in impaired debts in the past three years.
Loans accounting for more than a third of that amount have been repackaged and sold in securitization deals that tapped a guarantee scheme dubbed ‘GACS’ introduced by the government in 2016 and recently renewed until May 2021.
Under the scheme, banks buy a guarantee from the state to back the least risky portion of the repackaged notes. By reducing the risk for investors, this has widened the range of potential buyers beyond purely speculative players such as hedge funds.
But the recovery of the loans is proceeding more slowly than initially anticipated, credit rating agencies have said, raising concerns about eventual losses on these deals.
Two sources in the loan recovery industry said the Bank of Italy had been requesting detailed data on the progress of collections, with a focus on deals backed by the GACS state guarantee.
The Bank of Italy declined to comment.
Italy has become Europe’s biggest market for distressed bank loans, and portfolios comprising thousands of borrowers have changed hands in recent years.
A creaking judicial system, patchy loan records and the size of the debt pile that banks have rushed to get rid of are making life hard for loan collectors.
Bad loan specialist Banca IFIS (IF.MI) in September estimated that only 11 billion euros had been recovered out of 177 billion in problem loans sold by banks since 2015.
The repackaged loan deals typically span a number of years, meaning debt collectors have time to make up the shortfall, but recovery activity is usually stronger in the early years.
To keep collections going, some recovery specialists are looking to sell portions of the portfolios they have under management, several industry sources said.
Moody’s in September said recoveries in nine out of 14 rated GACS-backed deals were behind the initial business plans’ projections and collectors were reining in costs to improve net recoveries.
Scope Ratings in July downgraded a 2017 GACS-backed securitization by regional lender Credito Valtellinese (PCVI.MI) due to much slower-than-expected collections.
The success of the GACS scheme has prompted Greece to adopt similar measures to help its lenders shed problem loans.
Italy tightened its terms when renewing its scheme this year, increasing protection for the state.
One source however said the industry expected authorities to take some sort of action on deals carried out under the first GACS scheme if the underperformance persisted.
Reporting by Valentina Za; Additional reporting by Stefano Bernabei in Rome; Editing by Hugh Lawson