Italian bad debt sales hit multi-year low in first quarter, PwC says

ROME (Reuters) - Non-performing loans are no longer "a significant problem" for Italian banks, but large outstanding amounts in the hands of investors will require careful management, PwC said in a report on Tuesday.

The total NPE (non-performing exposure) stock on Italian banks' books was under 53 billion euros ($57 billion) at the end of 2023, down from a peak of 341 billion euros in 2015, PwC noted.

"The first quarter of 2024 marked the lowest number of transactions related to the sale of non-performing exposures in recent years," PwC said, adding some 21 billion euros in bad debts changed hands in 2023.

"Looking ahead, the volume of NPEs sold by banks on the primary market is expected to remain limited compared to the past," the report added.

Higher interest rates boosted Italian banks' profits last year, PwC said, with return on equity (ROE) for significant Italian banks at 14.1% versus 9.2% in 2022 and 5.6% in 2021.

Despite the higher costs faced by borrowers, asset quality somewhat improved. New inflows of NPE last year totalled 13 billion euros, close to a record low of 12 billion reached in 2022.

"All these elements may suggest that NPEs are no longer a significant problem," PwC said.

Large scale disposals by banks between 2017 and 2019 turned Italy into Europe's biggest market for soured debts. With low levels of new NPEs, however, loan collectors have been forced to consolidate and diversify their sources of revenues.

"It is worth considering that there are over 300 billion euros of total NPEs in the market, including those sold to investors, which are largely still outstanding and require management, and over 200 billion euros of Stage 2 loans that require close monitoring," PwC said.

Stage 2 loans are still classed as performing but carry a high risk of turning sour.

(Reporting by Alvise Armellini; Editing by Valentina Za)