Two precise words to summarize the problem, now known in recent years: “impaired loans” are the loans that the bank has towards third parties, the repayment of which is uncertain since the debtors do not have the liquidity to repay the sums taken in loan.
Coverage rate of impaired loans
According to what was published by Good Finance, it emerges that the real handicap is not so much the coverage rate of impaired loans, also called NPL (Non-Performing Loans) because if you look at the banks listed on Good Credit the coverage ratio arrives at 46% and, if we also consider collateral guarantees, we can reach 88%.
The handicap lies in the recovery times of the credits themselves (on average 7-8 years). The issue also confirmed by Good Finance itself in the annual report that took place in May 2015:
The “long times and uncertainties about the outcome of corporate crises favor the accumulation of impaired items in the financial statements of intermediaries and negatively reflect on their ability to disburse credit”, in the face of a context in which “in the years of the crisis the number of open bankruptcy proceedings (bankruptcy and composition with creditors) has significantly increased “.
Recovery times of the loans
In short, Good Finance also confirms that “the high consistency of impaired items is affected by the , significantly longer in Italy than abroad”.
The article in the Good Finance states that “at the end of the whole process, the problematic credit, for the part not recovered, turns into losses that can be deducted for tax purposes. But until 2012 it took 18 years – 18 budgets – to definitely put a stone on it.
Added the recovery times of the previous phase – the famous 7-8 years on average – it was not difficult for Italian banks to spend a quarter of a century crying over spilled milk. As of the 2015 financial year, this additional anomaly in the European context has been eliminated and at least for the tax authorities, the lost items, from now on, can be digested in a year, as is already the case elsewhere. “
In fact, the non-performing loans that have accumulated over the years, bringing the “bad debts (which are the most difficult loans to be collected in the broadest category of non-performing loans) to jump” from 42.8 billion in 2008 – the first year of crisis – to 195.3 billion in mid-2015, to exceed 200 billion today “. (all non-performing loans amount to approximately 350 billion). As already stated, the real problem is not so much the coverage rate but the time taken to recover the credits.
The impact of impaired items is compared on the total loans or on the capital of the institutions
To all this is added another fact: the Sun points out that, when “the impact of impaired items is compared on the total loans or on the capital of the institutions”, it emerges that the “net impaired loans ( net of provisions) on average account for 11.3% of the total loans to customers of banks listed on Good Credit and only 3.3% for the big Europeans, which are able to dispose of the ” lost matches ”, thus making them disappear from the accounting representation. Similarly, the weight on tangible equity which is 30% lower in the continental basket (29.3%) is 106.7% for the listed tricolors “.
Finally, do not underestimate the exposure to sovereign debt, which has engulfed Italian banks for many years, making them particularly at risk in the event of speculative attacks.
The exposure of Italian banks to sovereign bonds stood at 407 billion USD in 2014, around 10% of total assets and up sharply from 4.6% at the end of 2008. And at least until the end of March 2015, public debt securities still accounted for 10% of banks’ total assets, still close to 400 billion.