As we start to return to normality all over Europe we are inevitably going to face some big economic hurdles as we deal with the financial consequences of the Coronavirus pandemic. One of these is the inevitable wave of distressed credits that will start to appear after the moratoria agreements expire.
Alongside several other banking colleagues from Italy and across Europe, I was delighted to explore this topic at the Credit Village Spring Day, which took place at the Borsa Italiana. Following a discussion with Andrea Enria, Chair of the European Central Bank’s Supervisory Board, we looked at the credit market, how it will be affected by the pandemic and what the future might look like in our respective countries: from considering where the business of purchasing and managing credit will be more challenging to which asset classes will be of significant interest.
As far as Italy is concerned, clearly nobody knows which part of the 130-billion-euro worth of moratoria positions will turn into Past Due’s and subsequently, UTP’s and then NPL’s in the next months and years. One thing is for sure: managing the tens of billions of UTPs that will emerge, will play an important part in the Italy’s ability to restart the economy. However, is the market ready to manage them? What will be the key strategies and tools we need to put in place? And how important is banking specialisation to deal with this issue?
UTP’s are the most crucial component of the new wave of distressed credits we should prepare to manage.
For me, the goal with UTPs must absolutely be to return the company to a stage where it can perform again: a very different goal than NPL’s management where the task to perform is mainly focused on the collection of the collaterals. Bringing UTP’s back on track, to success, is vital and something we should all be concerned about, because ultimately it affects growth, employment, and the very functioning of our economy and society.
Banking competencies are sine non qua in this situation, and specialised banks are a key part of the solution. At illimity, we are in a strong position to offer two important tools to do this.
The first is our very important industry focus. Helping a company to restructure and relaunch means understanding how various sectors and businesses actually work. That’s why, for every sector, we at illimity engage “tutors”, people who have lived or are still living as top managers in that world, and who can help us to really understand the problem of each situation – for example, whether it is a financial or managerial or strategic problem – in order to intervene in a targeted manner.
The second tool is supplying new finance to UTP’s with the agility, the skills, and yes, the courage, also in cases where traditional banks will find it more difficult to act. It’s very much a matter of different perspective: in selecting and supporting UTP’s the lens through which the potential has to be identified is not only the evaluation of their past balance, but rather their future prospects. A UTP SME which is restructuring and relaunching itself needs a specialized bank more than anything else: the onboarding must be easy, continuous advisory must be available, factoring, short term and long-term financing has to be adapted to rapidly changing priorities and different kinds of support facilities have to be found (guarantees and bonds just to make two examples)
What else can make UTP’s management more effective?
Regulation on NPE’s should make more clearly the distinction between going concerns and gone concerns: today it is not the case.
Another key element to make interventions on UTP’s successful is certainly rapidity. Also in this respect a lot better can often be made by courts in managing the legal procedures and by banks themselves in reaching agreements and executing them.
The inevitable new wave of UTP’s is a systemic challenge that can certainly be successfully handled. The role of specialized banks will be key: illimity feels this responsibility and we guarantee our outmost commitment.
