Proposed Legislation No Boon to Italian NPLs Securitisation Market

In this commentary, DBRS Morningstar analyses recent proposed legislation on Italian nonperforming loans (NPLs) and credit implications related to securitisation transactions.

Summary highlights include:
-- An analysis of the proposed law presented on 31 January 2023 by certain members of the Italian parliament belonging to the majority supporting the government as well as the latest proposal presented by certain members of the minority.
-- Credit implication on the Italian NPLs transactions, including GACS (Garanzia sulla Cartolarizzazione delle Sofferenze) transactions.

“Our view is that, although the application of the proposal should be a one-off, it could have a credit impact on DBRS Morningstar-rated Italian NPL transactions considering the possible decrease in estimated collections as well as on the expected recovery timing under the relevant business plans, although in certain cases the performance benefits. Furthermore, the mere announcement of the proposal could lead to some consequences: borrowers could delay their payments awaiting the approval of either proposal, already reducing the expected collections of securitisation transactions in place. In addition, investors could hesitate to invest in Italian NPL portfolios as a result of the regulatory uncertainty”, stated Lorenzo Simonte, Assistant Vice President of European NPLs at DBRS Morningstar.