[Italy] [Portfolio Management] [Highlights from SmithNovak’s Global NPL: ‘focus on Italy’ panel] [What you missed at NPL Italy 2021: the UTP panel] [What you missed at NPL Italy 2021: the servicing panel]
By Lisa Burns, Director Asset Management Europe (Italy)
The NPL industry has seen a global slowdown in transactions. Banks are now expected to resolve legacy loans ahead of the spike in COVID-related defaults. What does this mean for servicers?
This year’s Global NPL conference took place in early October, welcoming over 500 delegates from 250 companies and 25 countries around the world.
SmithNovak, hosts of Global NPL, expects that a new phase of portfolio transactions is about to begin.
BCMGlobal was premium sponsor of the servicing panel at Global NPL, welcoming four panellists from servicers across Europe.
If you missed the panel, here are some highlights.
What are the opportunities for servicers right now?
The panel first acknowledged that the pan-European servicing market has grown significantly over the last few years.
But servicing remains a ‘local business’, and is most successful when working alongside other local suppliers of expertise. Its local nature is what differentiates servicing in the NPL market.
Servicers win and grow more mandates by using their local tools and resources – but there are still opportunities to go deeper with clients. How can servicers distinguish themselves from utility servicers? Can they transform their capabilities to other markets? For example, BCMGlobal helps private equity firms to access innovative investment opportunities that can grow their business across jurisdictions.
Whether servicers are supporting bank or non-bank originators, it’s their responsibility to find a model that works for them. Larger servicers have access to larger tool kits, so smaller servicers have to find their wins in more unique ways – such as sourcing off-market deals and keeping staff incentivised as roles increase in popularity.
How do you deploy the right expertise?
Another key to success when servicing NPLs is deploying specialist teams to achieve the best possible outcomes.
For example, BCMGlobal has a dedicated REOCO team to support our clients throughout the legal process behind the real estate credit bid, the repossession of the asset and all asset management activities.
With reporting activities, servicers should try connect the same teams with the same clients across their multiple jurisdictions so that they receive the same familiar line of communication and reporting.
Another opportunity when servicing default loans is to develop networks with lawyers, evaluators and other stakeholders involved in the process. BCMGlobal works closely with a network of brokers when an asset is being sold consensually with a borrower, or for sale through judicial auction, to achieve the best possible value. We then introduce the real estate asset to our investor network.
How can small and large servicers compete?
The panel agreed that servicers will experience extremes whether they’re small or large. Their advice is to ensure they don’t rely on one stream of capital and to have a diversified client base for stability.
For example, BCMGlobal can support three client types: private equity firms, banks and asset managers. For PE firms, we manage all asset and loan classes while sourcing innovative investment opportunities to grow their business across jurisdictions. We can sell NPEs at the highest possible value for banks and manage their operations in regulated environments, while supporting asset managers through loan management and REOCO services.
Servicers also have an opportunity to cand become an asset owner, as clients will want to stay closer if their ambitions are aligned. Servicers can also add value in a risk-retention role regardless of their size.
What does the Italian servicing market look like?
Loans in Italy are mostly made up of SMEs, with a small percentage of consumer loans and even less residential.
Since 2016, most deals in Italy have been with large banking platforms who create relationships with investors. But there are now 10 big servicers managing €300bn of assets.
The Italian market is seeing more single-name lateral deals in the secondary market, but servicers need to have plenty of capacity to deal with this. They must work even harder to extract value where single-name tickets are as small as €2-3m. Servicers need to be flexible and often find bespoke solutions for each case.
For real estate collateral, there are opportunities in Italy to co-invest with local developers and high-network individuals. This enables developers to build in bigger, more popular cities where real estate is popular and can be sold for more value.
These 10 big servicers are mostly dealing with traditional activity in these huge volumes of loans. Especially since COVID-19 and court closures, the number of real estate auctions and assets have increased. This is driving the market towards REOCO activities with more focus on the real estate side.
BCMGlobal supports REOCO clients with a steady hand throughout the legal process and complexity surrounding credit bids, repossession and asset management activities. Clients want to protect or add value to their assets, so we participate in real estate auctions during legal procedures and undertake management activities until full resolution – including disposal and sale.
How can technology push the servicing industry forward?
Servicing is a human-intensive industry, but IT can play a role in moving it forward.
For example, many servicers are creating online self-service payment portals for clients – making payments quick, simple and visible. This also enables servicers to trace payments more easily.
. Properly analysing the data available to servicers (including public registers or their clients’) allows them to tune into how people behave and give them the tools to help solve their own problems.
For example, transaction data enables servicers to develop systems that analyse all available data to understand and predict the right prices of sales – therefore extracting the right value.
The panel agreed that progress is being made in the industry here but that there is room for improvement. Human capital will always be a commodity in servicing, but servicers have to evolve and with their clients to fully support them.
Contact us to find out how we can help you.