NPL: speeding up or normalising the recovery procedures. What is the best solution?


When it comes to non-performing loans, the media and leading operators in this sector all agree upon the necessity tospeed up the recovery procedures. Last week,during the Monza conference,most of the lectures – and even the coffee breaks – highlighted this aspect. All the actors involved seem to have joined their forces: the government voted in favour of the proposals that recommended this, creditors – forced by urgent EU requests – are about to commit themselves to remarkable sales, the servicer and legal advisors are adapting their activity to this situation and managing to offer better performances.

It is a common thread across each analysis carried out within the sector. Is the price of NPLs too high? Then the procedures must be speeded up. The private individualsneglect auctions,the Courts are overwhelmed by deeds and documents,the balance sheets of the banksare full of non-preforming credits… The solution is simple, so simple that we are all aiming at it unwittingly.

Now, let us answer this provocative question: are we sure that this is the right way? Do we really think that extremely quick recovery procedures and massive sales will solve a systemic problem?

Perhaps, speed is not the most suitable solution, or rather, it is not the only one. We need an actual normalisation.

In our opinion, the most effective solutions should be inspired by real economy, however, a more accurate analysis will surely help us understand thatthe normalisation is even more important thanquickness. In fact, the most decisive variables result from the vague application of rules already existing, instead of the introduction of new regulations.

This situation calls for binding timeframes, which are more urgent than quickness. Let us assume the ability to recover loans:the actual effort should not aim at the reduction of this periodto 10 months, but rather at ensuring the absence ofprocedural obstacles, so that the recovery may be actually feasible within one yearunder normal conditions.

To this end, some possible measures are:

-The vacancy of real estates, and a certain release time. In order toapplyfree market prices to properties, it is necessary to recreate the free market conditions in the court orders for sale;

-Clear rules with the purpose of avoidingthe stagnation of money along the procedures;

-Introduction of an incentive (or penalisation) plan for agents andadministrators/liquidatorslinked to certain implementation times.

This approach will enhance the appeal of the product and minimise the risk of creating an excessive supply, with the followingfall in the prices. It is useless to improve the efficiency of the recovery system, if the recovery rate is inevitably lower.

Emanuele Grassi