Italian Banks – Focus on NPLs to Continue in 2019; Stronger Economic and Market Headwinds

Italy is making progress in tackling non-performing loans (NPLs), but is not out of the woods yet, as the country still holds the largest stock of NPLs in the European Union (EU).

2018 was a significant year in terms of NPL reduction at many Italian banks, which managed to downsize their stock of NPLs primarily via a combination of direct sales and securitisations backed by the GACS (Garanzia Cartolarizzazione Sofferenze) Government Guarantee Scheme. The total gross stock of NPLs decreased by approximately EUR 50 billion from the beginning of 2018 to EUR 238 billion at end-June 2018, with the gross NPL ratio down to 12.5%, from 14.5% at end-2017 and 18.2% at the peak in 2015. Nonetheless, the ratio still compares unfavourably with the EU average.

DBRS expects Italian banks to continue with their NPL reduction in 2019. This process, however, might prove to be more challenging due to a likely slowdown in economic growth and prolonged volatility in sovereign and financial markets.

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