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One of the crucial challenges the banking sector must face is related to NPLs. All players involved must play this match at one’s best.
Regulator pressure forced banks to improve internal management and to aim to strong de-risking policies, by managing to halve NPL volumes in 5 years. Foreign and non-foreign investors have paid particular attention to Italy for the high levels of impaired loans and for the business opportunities encountered.
The NPL Ecosystem has been redefined and strengthened, bringing benefits to the banking sector and to the entire economy:
The banking sector has been heavily regulated in their activity to manage NPLs, by limiting their sphere of action and by orienting their operations. Regulators believe banks should get back to doing their traditional activity
New players, such as Re.O.CO., Servicers and local collectors, have enriched the NPL market with specialized skills and peculiar competencies. The servicers have consolidated their position also through joint ventures and partnerships
Given the new environment, Banking Industry is called upon to renovate their Strategy & Recovery process Paradigm. From one hand, Regulators put pressure to reduce NPL Stock and increase provisioning (NPE Guidance, IFRS9, Addendum NPE & Prudential Backstop), on the other hand, Financial System can leverage on new recovery options (Disposal, Collateral promotion and repossession, Outsourcing) to optimize timing and recovery rates. Moreover, Artificial Intelligence can foster unstructured and complex decision-making such as workout strategy selection, by taking into account new variables previously disregarded.
Actors must operate in a new macroeconomic scenario: banks are ready to witness a massive inflow of NPL, workout unit will face delays for in-court procedures and UtP loans may decrease probability to return performing. However, NPL sector can be considered countercyclical, where Servicer Industry will seek to drive profitability up with higher volumes managed.
In this context, Reply supports its customers in the financial industry and NPL sectors, in defining targets and constrains in terms of NPL metrics, handling Supervisory Dialogue for regulatory reporting, designing directional reporting and optimizing NPL workflow. Reply can leverage on expertise with digital transformation and accelerators to improve current infrastructures with decision engines and AI technologies. Reply also provides services across other core elements of credit risk, SSM regulatory reporting and compliance.