Coronavirus and NPL: 3 certainties to start from

Coronavirus and NPL: 3 certainties to start from 1

We are experiencing a completely new historical moment.

Any comparison on other experiences of the past does not fit: it is not a war, otherwise we would not be at home in the heat with all the comforts it is not even a normal influence, otherwise we would not have hospitals to the limit of their intervention skills.
We do not know exactly when all this will end, when we will be able to leave the house and how different our daily lives will be in the near future.

Therefore, every forecast reasoning made today has no certain foundation.

Often people are led to think that NPLs are an anti-cyclical economic area; in reality they are only a part of it, because each NPL at the end of its path returns to being a real economy and responding to all the logics connected to it.

Let me explain better: if, for example, we bought a NPL guaranteed by a hotel at a good price and then to recover the investment we had to sell the hotel at auction or on a free market, we would be faced with a zero-sum game.
We believe that at this point it is appropriate to start from the certainties, we have identified three:

  1. The NPL market is a mature market:
    in 2009 following the financial crisis, the banks were overwhelmed by a wave of NPL and were absolutely unprepared to face it. Today the situation is completely different: the NPL market is mature, many players with different specializations and sizes have been born over the years. We are certainly more ready to face the situation and the restart will be faster.
  2. The Legislator understood the centrality of the NPL theme:
    in the last 2/3 years the legislator has made important steps forward by institutionalizing and facilitating some virtuous practices of specialists, such as corporate restructuring and repossess of real estate guarantees (SVA – Reoco). Sometimes it has been argued that there have been many interventions that are close together and not always consistent with each other, but there is the fact that the topic has been fully addressed. In the coming months it will be particularly important to revive this dialogue; It is also important that the servicers represent their experiences and that they consolidate the virtuous practices already adopted, respecting debtors in difficulty and creditors entitled to recover their money.
  3. The specialized servicers are more performing:
    the NPL market has now reached full maturity and as in any mature market, the winning card for performance is specialization. Over the years it has become clear that focusing on specific asset classes has brought positive results both in terms of assessment capacity in purchasing and in terms of maximizing recovery in the sales phase. The difference between the results of the specialists and that of the generalists will be increasingly evident; in two different phases we will need both results to move the market and bring NPLs back to the real economy, that of families and entrepreneurs, as soon as possible.

I wish you to spend these days with serenity and health.

Emanuele Grassi

GMA deals with NPL mortgage loans, property management and development to guarantee loans and securitization transactions. Contact us.