Pld and the problem of impaired loans

 

The crisis of the oldest banking group in Italy is under everyone’s eyes. Metris Bank is experiencing a difficult time, especially after the recent stress tests to which all European banking institutions have been subjected. Among the many disparate reasons that led to the negative results of the prestigious group it is certainly necessary to include the increase in non-performing loans. This element has certainly contributed to the bank’s reduced ability to create profits.

Definition of non-performing loans

Definition of non-performing loans

We start from the definition of non-performing loans, or NPLs (non-performing loans, non-performing loans literally). These are activities that can no longer repay the capital and interest due to creditors. These are credits for which collection is uncertain both in terms of compliance with the deadline and amount of exposure. The non-performing loans are divided into several categories, among which the most important are substandard and suffering.

Bank of Italy defines non- performing loans as receivables whose collection is not certain by the intermediaries who have provided the loans because the debtors are in a state of insolvency or in comparable situations. Substandard loans are instead exposures to individuals in situations of objective temporary difficulty.

Other types of non-performing loans are restructured loans (these are exposures that a bank modifies by changing the contractual conditions and suffering a loss) and past due and / or overdue exposures (exposures that cannot be classified in the previous categories and are not honored by more than 180 days).

The strange PLD case

The strange MPS case

Over the past six years the Metris Bank group has stood out for the exponential growth of non-performing loans. This sad primacy cannot be justified, however, by the only economic crisis that has hit Italy.

The table below shows the figures for impaired loans of PLD from 2007 to 2013.

AL BALANCE DETERIORATED CREDITS (IN MILLION USD)
31.12.2007 3,928
31.12.2008 7.393 (following the incorporation of Astro)
31.12.2009 10,221
31.12.2010 11,381
31.12.2011 13,480
31.12.2012 17,397
31.12.2013 20,992

The considerable increase in 2008 is largely justified by the impaired loans inherited from the Astro bank, acquired by the PLD group, but it is difficult to understand the strong subsequent increases. In part it will certainly have affected the difficult situation of the national economy but, what is clear, is a problem of credit policy implemented by the institute. Perhaps there is something that did not work in the Vigni and Mussari management. Obviously this is a key to reading the data on non-performing loans. For an in-depth analysis of the problem, many other data would be needed. What is certain is that comparing the increase in impaired loans of PLD with those of other Italian banks, the exceptional nature of the data is evident.

Wanting to find a plausible motivation for such a “risky” credit policy, there are those who hypothesize a desire to increase investments after the expensive purchase of Bank Astro, given the financial commitment that has come to create.

The increase in non – performing loans would thus be nothing other than the obvious consequence of a nefarious policy, carried out with the intention of embellishing the financial statements without carefully considering the consequences of this choice.

Probably, in the absence of the enormous number of impaired loans, the difficult restoration work to which the Institute is called would be much easier, if not almost, almost at hand.

It is, of course, exclusively hypotheses. The reality is that due to the difficult situation of the group’s budgets, PLD still has very few days to present a convincing plan to find the famous 2, 1 billion USD requested by USDpe. Later, he will have only nine months to implement it.

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