Only two weeks into his new job as the eurozone’s single banking supervisor, Andrea Enria is already at the sharp end of rebukes from Italy’s populist government.

In mid-January, Monte dei Paschi di Siena, now majority state-owned, announced details from the December draft version of its annual supervisory review and evaluation process (SREP). This included an unexpected European Central Bank (ECB) recommendation to bring coverage of its bad-debt pile up to 100% within seven years – something the market thought only stronger banks would have to do.

For Italy’s deputy prime minister Matteo Salvini, the ECB might have been exerting unfair pressure on the country. «The new attack by the ECB supervisor on the Italian banking system and Monte dei Paschi shows once again that the banking union … not only does not make our financial system more stable, but it causes instability,» says Salvini, according to Reuters.

Italy has Europe’s biggest non-performing-loan (NPL) pile, but this coverage policy is eurozone-wide – and, anyway, Italian bank stocks soon recovered. The large and mid-tier Italian banks all issued statements denying a «significant» or «material» impact on their financial forecasts, even though the ECB is also pushing them to reach 100% NPL coverage earlier than many investors imagined.

Gross bad debt in Italy alone still amounts to about €200 billion, after all, with average coverage ratios ranging from about 45% to 60%, according to UBS.

Moving towards provisioning 100% of existing NPLs will cost Italian banks on average about 47 basis points of capital annually for the next two years alone, with the total cost (€63 billion) about three times more than for the laxer targets the market had assumed, according to Giovanni Razzoli, banks analyst at Equita in Milan. «There will be an increase in banks’ coverage from these requests,” he says. «The banks are trying to downplay the situation, but the impact on some is quite significant».

Original Story:Euromoney | Dominic O’Neill
Photo: FreeImages.com/ Matic Zupancic
Edition:Prime Yield

IFIS NPL, the company owned by Banca IFIS Group dedicated to the acquisition, managing and transformation of non-performing loans (NPL), bought from Monte dei Paschi di Siena, a NPL portfolio with gross book value of €1.16 billion.

The portfolio acquired includes over 83,000 debtors. Ca. 16%, equal to €192 million gross book value, is represented by consumer loans. The remaining 84%, ca. € 967 million gross book value, consisted of unsecured small ticket banking NPLs.

In a note, Banca IFIS confirms its dynamic strategy in purchasing and managing NPLs.

After buying in the third quarter eight portfolios with a gross book value of ca. €1.83 billion, in the fourth quarter of 2018 the Bank purchased, in addition to the above mentioned MPS’s transaction, other four portfolios with a total gross book value of €93 million and ca. 30,000 positions. In 2018, total purchases amounted to €3.6 billion gross book value, in line with company targets.

As a result of these transactions, IFIS NPL’s portfolio amounts today at €15.7 billion (gross book value) with over 1.6 million positions.

Original story: Globe News Wire | PR
Photo: IFIS Finance
Edition: Prime Yield

The credit demand in the Eurozone should ease in the first quarter, as factors braking the single currency area loom larger, says the latest European Central Bank (ECB) bank survey.

«Net demand continued to increase across all loan categories in the fourth quarter of 2018, but banks expect some moderation in demand over the next three months», the ECB said in a statement.

Over the fourth quarter of 2018, low interest rates encouraged both firms and households to borrow, with businesses using cash for investment and mergers and acquisitions, while a rising housing market spurred individuals to seek mortgages.

During the first quarter of 2019, firms’ and households’ demand for loans should be higher, but banks expect some moderation in demand, forecasts the same report.

Banks’ non-performing loans have tightening impact on credit standards

With regard to the impact of non-performing loans (NPLs) on banks’ lending policies, the report shows that euro area banks’ NPL ratios had a tightening impact on their credit standards for loans to enterprises and housing loans over the past six months.

Looking forward, over the next six months, they expect a net tightening impact of their NPL ratios on credit standards across all loan categories. Banks’ NPL ratios affected their lending policies over the past six months mainly through their impact on access to market financing.

Original story: The Express Tribune | AFP
Edition: Prime Yield

The European Banking Authority (EBA) has just published its Risk Dashboard, which confirms improvements in both asset quality and capital ratios in the EU banking sector in the third quarter (Q3) of 2018, while profitability remained subdued.

Together with the Risk Dashboard, which summarizes the main risks and vulnerabilities in the EU banking sector using quantitative risk indicators, the EBA published the results of its Risk Assessment Questionnaire, which includes the opinions of banks and market analysts on the risk outlook collected in autumn 2018.

The document shows that European Banks’ capital ratios remain high with a modest increase since Q2 2018. The CET1 ratio on a transitional basis increased from 14.5% in the last quarter to 14.7% in Q3 2018 as the result of both an increase in CET1 capital and a decrease in total risk exposures. Banks representing 99.6% of total assets have a CET1 ratio above 11%. The fully loaded CET1 ratio increased to 14.5% in Q3 2018.

Good news for the quality of the EU banks’ loan portfolio, which has improved further. In Q3 2018, the ratio of non-performing loans (NPLs) to total loans kept the downward trend and stood at 3.4%, its lowest level since the NPL definition was harmonized across European countries in 2014.

This declining trend of the NPL ratio is due to the growth of total loans as well as due to the continuous decline of NPL, which now stand at €714.3 bn. Looking forward, banks expect further improvement in the quality of their portfolios, while market analysts seem to be more cautious on the asset quality outlook. Profitability in the EU banking sector needs to improve further.

The average return on equity (RoE) has been stable at 7.2%, with the share of banks with RoE above 6% decreasing from 67.1% in Q2 to 62.8%.

The answers to the Risk Assessment Questionnaire show that banks expect profitability to remain subdued, with only about 30% with a positive outlook in the next 6-12 months. In order to improve profitability, banks target increasing fees and commission income and decreasing operating expenses.  The loan to deposit ratio has remained broadly stable.

In Q3 2018, the ratio increased marginally by 10bps to 118.4%, driven by a growing numerator as well as denominator. The leverage ratio (fully phased-in) remained stable at 5.1%. Asset encumbrance ratio increased slightly to 28.2% from 28% in Q2 2018. The liquidity coverage ratio (LCR) improved to 148.5% in Q3 2018, the highest value since Q3 2016 and well above the 100% requirement.

The figures included in the Risk Dashboard are based on a sample of 150 banks, covering more than 80% of the EU banking sector (by total assets), at the highest level of consolidation, while country aggregates may also include large subsidiaries.

Original Story: EUReporter | EUReporter Correspondent
Photo:FreeImages.com/Szymon Szymon
Edition:Prime Yield

The European non-performing loan (NPL) market reached a new peak in 2018, with disposals totalling €205.2 bn in gross book value (GBV), according to the new European NPL FY report from Debtwire ABS.

Debtwire’s report tracked 142 transactions, recording a particularly intense pace of activity in the last quarter, given that at the end of 3Q18, closed deals totalled € 125bn.

Italy was the most active country in 2018, producing half of the total NPL sales. Debtwire identified 64 closed NPL sales with a GBV of € 103.6bn, almost half of which were via securitisations within the government’s Garanzia sulla Cartolarizzazione delle Sofferenze (GACS) scheme, which runs only until 6 March 2019.

At the same time, sales started to slow down in Spain as large Spanish banks near end of their balance sheet clean-ups.However, a massive € 43.2bn was completed in 2018 across 27 deals and most of these have involved two jumbo buyers, Cerberus Capital Management and Lone Star Funds.

Other significant trend is that the sales are starting to accelerate in other Southern European countries, still the ones with the highest NPL ratios, and market participants expect to see more in 2019. In 2018, Greek banks closed eight sales for a total volume of €13.9bn, Portuguese banks closed 16 NPL and REO deals for a total volume of €8bn and Cyprus saw two deals for €2.9 bn.

In Ireland, there were eight deals for EUR 14.3bn, while in the United Kingdom the bad bank UKAR dominated the loan disposal market with £5.8bn of sales out of a total £6.5bn. Germany has also seen disposal of NPLs connected with troubled local banks. HSH Nordbank’s € 6.3bn portfolio, sold together with the bank to Cerberus, made up most of the €7.7bn volume in the country.

«The NPL market has reached a peak that will not be topped in 2019. This is especially the case in Italy, where the GACS effect will slow down, with most large banks having already taken advantage of the program and now needing to focus on unlikely to pay (UTP) portfolios. Still, with European regulators pushing for banks to dispose of their bad loans quickly, activity will remain consistently intense across the continent» said Alessia Pirolo, Head of NPL Coverage, Debtwire.

Original Story: Property EU| Jane Roberts
Photo: 
Edition:Prime Yield

Global economic growth is expected to slow down in 2019, according to UBS, as tighter monetary policy, weaker earnings growth and political challenges confront the world’s major economies.

After seeing a growth of 3.8% in 2018, UBS said in its outlook for the year ahead that it expected global economic growth to slow to 3.6% in 2019.

«The decline in global growth will mean a weaker tailwind for global markets, which could begin to anticipate an end of the economic cycle as 2019 progresses,» the investment bank said in a note.

In the meantime, solid domestic demand in the euro zone will not be sufficient to offset reduced export growth, UBS’s economists said.

On the bright side, UBS said a recession looks unlikely given current rates of consumption, investment and employment growth «and we think the typical causes of a downturn are unlikely to materialize in 2019.»

«Our base case is for inflation to stay contained, allowing central bankers to remain sensitive to growth. We don’t foresee a major fiscal policy shift or a commodity price shock. Consumer balance sheets are in solid shape and improvements in banking sector capitalization since the financial crisis reduce the risk of a global credit crunch.»

It also noted that there are growth opportunities and pockets of value.

Tighter monetary policy

Among the biggest challenges facing the world’s largest economies is a new era of tighter monetary policy following a decade of stimulus after the financial crisis of 2008.

Central banks in the U.S., U.K., euro zone, Japan and elsewhere introduced a mixture of low interest rates and expansionary monetary stimulus programs, known as “quantitative easing” (QE) — essentially large-scale asset purchases — in a bid to boost spending in the economy.

While these tools were useful in re-establishing stability in global financial systems, central banks are keen to “normalize” such policies.

The U.S. has already stopped its QE program and hiked interest rates four times in 2018 while the European Central Bank confirmed in December that QE would end at the end of the month, with bond purchases falling from €15 bn ($17 bn) a month to zero. Amid ongoing Brexit uncertainty, meanwhile, the Bank of England has yet to say when its own QE program will end, although interest rates have been raised slightly.

UBS noted that the coming year will represent the first time since the global financial crisis when central bank balance sheets are on track to end the year smaller than they were at the start of it.

Original story: CNBC | Holly Ellyatt
Photo: Freeimages.com/Sergey Klimkin
Edition: Prime Yield

The European Central Bank’s (ECB) decision to take temporary control of Italy’s troubled bank Banca Carige means the government doesn’t have to consider state aid yet.

Thanks to ECB’s intervention, Italy’s populist government – an increasingly uneasy coalition of the anti-establishment 5Star Movement and the far-right League, which put banks at the top of its list of enemies — doesn’t have to find a solution to the bank’s financial problems, avoiding (for now) the use of state aid, which would have enraged many of the coalition partners’ voters.

In the root of ECB’s decision, was the risk that the failure of Carige to raise needed capital of up to €400 million could reverberate across the entire Italian banking system, possibly sparking a systemic crisis. That’s a risk the seven-month-old government wouldn’t be able to afford, as it remains torn between ambitious spending plans and modest growth forecasts for this year.

«If there was a risk of contagion from Banca Carige, that has been averted for now,» said an official close to the European banking supervisory authorities, who declined to be named. «The ECB supervision grants continuity and gives more time to the bank to find a partner and pursue its turnaround plan.»

The ECB appointed a six-person team to manage Carige, Italy’s 10th-largest bank, after most of its board of directors resigned following the collapse of efforts to raise fresh capital. It was the first time the ECB had made such a move since it acquired expanded powers in 2014 to supervise European lenders.

Italian banks and their balance sheets, burdened by Europe’s biggest pile of bad loans, have been a constant source of concern for both the ECB and the Bank of Italy.

We must note that the two new ruling parties have been among the staunchest critics of Italian banks’ costly rescue plans, and reimbursing savers hit by the crisis was among their main electoral promises. Now, faced with their first banking trouble, they have been surprisingly tight-lipped.

Original Story:EPO/ AICEP
Photo: Banca Carige
Edition: Prime Yield

ItalianNPL servicing specialist doBank announced a deal to buy 85% of Altamira Asset Management to push in to other potentially lucrative southern European markets, adding €55bn in assets undermanagement to its existing €140bn.

doBank said it is attracted by the market size and complexity of NPLs in southern Europe, identifying the region as its number one priority in terms of potential merger and acquisition activity.

Original Story: Global Capital | Asad Ali
Photo: Altamira Asset Management (LinkedIn)
Edition:Prime Yield