Positive predictions for NPL securitisations

Northern Italian non-performing loan portfolios are performing better than Southern Italian portfolios, and Irish transactions are also outperforming assumptions. There are 11 transactions currently in the European NPL pipeline, most of which are Italian.

“At the moment, the majority of the transactions are outperforming DBRS plan assumptions,” says Alessio Pignataro, svp at DBRS. “However, it is early in the process to make a final assessment.”

He adds: “We can see that portfolios with higher concentrations in the North [of Italy] are performing better than portfolios with higher concentration in the South. This difference was somewhat anticipated, given the already conservative assumptions made around the known variation within Italy. This might pave the way for other transactions of this sort in Italy next year.”

Spanish, Portuguese and Greek NPL transactions are also predicted to emerge in 2019. There has also been arranger interest regarding unlikely to pay assets in Italy, leading to the prediction that 2019 will see at least one securitisation of UTP loans.

Meanwhile, Pignataro says: “We can see in Ireland that transactions are performing way ahead of the business plan, partly due to reperforming loans and the way the business plan has been constructed, whereby no credit is given to sale of these positions, which is something that typically occurs when borrowers become reperforming.”

Transactions so far have varied in terms of their transaction points. Many of the NPLs have been haircut down from their original price prior to securitisation, depending on the collateral.

Out of the €50.4bn of GBV issued to date, €47.2bn has come from Italy. Approximately €10bn of this has been securitised, with 20 transactions since 2016 executed via the GACS scheme.

“In terms of Italy, [the GACS scheme] has grown from a very small base in 2016 to a large number of transactions in 2017, multiplying in 2018 and is an ongoing prospect for further issuance,” says Gordon Kerr, svp, head of EU structured finance research at DBRS. “Some portfolios sold privately, which have been worked through and become reperforming loans, are likely to come through in the form of securitisations in the future.”

He suggests that the GACS scheme could be used to cover UTP transactions, with a similar guarantee potentially extended in Greece (SCI 12 October). “Overall the NPL trend in the banking sector has been in a positive direction,” concludes Kerr. “However, the real areas of stress remain in the peripheral countries [such as] Greece, Portugal, Italy and even some of the Eastern European block with high levels of NPLs within the banking sector.”

Tom Brown