PWC NPL December17 PDF

The Italian NPL market
Ready for the breakthrough

December 2017
www.pwc.com/it/npl
Foreword & Content
In 2017, the Italian banking sector was very dynamic and The Addendum could introduce, through the “calendar
characterized by the efforts of many banks to actively address provisioning” if enforced, material provisions to NPL from 1st
the NPL issues. Such issues were represented by high volumes January 2018.
of Non Performing Exposures (NPE) still accounted for in the
banks’ books and the difficulty to find the right measures to The financial markets still punish severely the Italian
properly manage the NPE life-cycle in line with the guidelines listed banks. The inverse correlation between their market
of the Regulator. capitalization (Price on Book Value) and NPE ratios features
the general perception and prejudice against the Italian banks
The NPL market is at a breakthrough point even if volumes still dragged down by the burden of their NPL.
are still huge, €300 bn as at 30 June 2017 vs €324 bn at the
end of 2016. Many Italian banks are still addressing the ECB New solutions, innovative approaches and breakthrough
guidelines, however pro-forma figures as at 31 December 2017 actions must be identified to speed up the NPL remediation
are equal to €250 bn (including the NPL disposal of Unicredit plans of the Italian banks. We believe that the answer could be
(€17.7 bn - Project Fino) and Banca Popolare di Vicenza / the undertaking of an innovative business transformation of
Veneto Banca (€16.8 bn), which were not deconsolidated in the NPE within the Italian banks.
the 30 June 2017 figures).
On one hand, the Italian banks should progress in the
NPE disposals reached record figures in 2017, exceeding establishing a “state of the art” NPE management by
€60 bn. Some ailing banks were rescued heavily contributing implementing the best practices in place covering governance,
to a NPL deleveraging (Banca Popolare di Vicenza and Veneto recovery processes and strategies according the ECB
Banca acquired by Intesa Sanpaolo, the three regional banks guidelines. As a result the recovery performance should
Carismi, Carim and CariCesena acquired by Crédit Agricole impact.
Cariparma).
On the other hand, the Italian banks should strategically
The acquisition of the UCCMB servicing platform by Fortress ponder and proactively set up large scale solutions such as i)
from Unicredit in 2015 resulted in the successful IPO of doBank, identifying separate loans portfolios potentially through self-
closed in July 2017 reaching a market cap of €700m (€1.1 bn securitizations of their NPL reaching higher transparency and
early in Dec. 2017). H2 2017 was characterized by booming effectiveness, ii) sealing partnerships with industrial players
M&A movements in the servicing market. Davidson Kempner and agreements with specialised servicers to extract additional
is in the process of acquiring Prelios while Lindorff Intrum value from their platforms, iii) deleveraging their exposure
acquired CAF (the platform and their NPL portfolio totalling either through true sales or securitizations (potentially GACS
€400m of GBV). Credito Fondiario established a servicing backed) in order to improve their asset quality.
partnership with Carige through the acquisition of the bank’s
platform and a NPL portfolio equal to €1.2 bn (GBV). Not to mention the Unlikely To Pay (UTP) challenge (GBV
of €104 bn as at June 2017) that will require the quest
Notwithstanding the prominent efforts in implementing for solutions covering multiple strategic options among
internal actions (industrial overhaul over monitoring and the forbearance measures, the true sale, the agreement
work-out management aiming at achieving the ECB criteria) with third party equity investors/debt underwriters or the
and external measures (disposals of portfolios, single names, commencement of liquidation procedures. The business
platforms to meet significant deleverage goals aiming at scaling transformation of the NPE field could lead the Italian banks to
down the NPL ratios), the NPL issues are still far away from address the UTP more effectively.
being fully sorted out.
Forward looking, we expect 2018 will be the year of NPE
ECB’s publication, issued in March 2017 on NPL Guidance, has transformation and breakthrough.
created pressure on banks to redefine their NPL strategies and
operating model. Furthermore, on 4th of October, 2017 ECB
published in consultation the Addendum to NPL Guidance to
ensure a proper level of “prudential” provisioning.
Pier Paolo Masenza Fedele Pascuzzi Vito Ruscigno Alessandro Biondi

Financial Services Deals Business Recovery Co-Head NPL Co-Head NPL
Leader Services Leader vito.ruscigno@pwc.com alessandro.biondi@pwc.com
pierpaolo.masenza@pwc.com fedele.pascuzzi@pwc.com
The terms of NPL (“Non Performing Loans”) and NPE (“Non
Performing Exposures”) are used interchangeably within
this study. This recommendation was even explained in the
“Guidance to banks on non-performing loans (March 2017)”
released by ECB – Banking Supervision*
Content
Macroeconomic Scenario 5
Italian Real Estate Market 8
Legal and regulatory framework update 12
Italian NPL Market 15
Italian Banks overview 22
Focus on UTP Italian Market 28
The Servicing Market 35
Recent market activity and outlook 44
* “Guidance to banks on non-performing loans (March 2017)” by ECB, par. 1.2, pag.6 “Scope of this Guidance”and par. 5.1, pag. 47 “Purpose and Overview”
4 | The Italian NPL market - Ready for the breakthrough

Macroeconomic
Scenario
Key Message: Italian GDP is forecasted to
remain stable in 2017 and increase in 2018, as
a result of the presence of higher export and
private consumption levels. Total investments
are expected to benefit from the extension of tax
incentives and the favorable monetary policy.
PwC | 5
Thanks to the support deriving from Chart 1: EU main economic drivers
macroeconomic policies, robust job
creation and gradual improvement in 2016 2017F 2018F
world trade, completing four years of
moderate but steady GDP growth, the
economic expansion of the European 8.5 8.0
Union has continued during 2017. 7.7
Overall, the EU GDP growth is set

to remain stable at 1.9% in 2017
and 2018 in the Euro area, since
investment and wages are still 2.1 1.9 1.9
1.9 1.9 1.9 1.8 1.7
constrained by the high level of public
and private debt and the presence of 0.3
surplus in the labour market.
Italian GDP is set to be equal to 0.9% -1.7 -1.6 -1.5

for 2017 and then to increase to
GDP (%) Inflation (%) Unemployment rate Current Account Budget Balance
1.1% in 2018, empowered by larger (% total labour force) (% GDP) (% GDP)
external demand, greater private
consumption and a higher level of Source: PwC analysis on European Economic Forecast Spring 2017. Unemployment rate as a % of total labour
investments, which benefits from low force, current account balance and budget balance as a % of GDP
real interest rates and the extension of

tax incentives adopted with the 2017
budget.
EU inflation raised significantly Chart 2: Italian main economic drivers

during the first quarter of 2017,
peaking 1.8% (increase mainly driven
11.7 11.5 2016 2017F 2018F
by the recovery of oil prices and the 11.3
temporary positive impact of energy 2015 2016F 2017F
base-effects). The 2018 forecasted
inflation is set to reduce to 1.7%. In 9.5
Italy, inflation is expected to climb 9.0 8.7
to 1.5% in 2017 and stabilize at 1.3%
in 2018, weighing on household real
disposable income. -4
2.6
Unemployment rate in Italy is 1.9 1.7
1.5 1.3
projected to decline marginally, 0.9 0.9 1.1
1.9 1.9 2.0 2.1 2.1 2.0
thanks to higher labour force 1.6
participation: the rate is forecasted -0.1 0.5
0.0
to stand at 11.5% in 2017 and 11.3%
in 2018, well above the average -2.4 -2.2 -2.3
European level (7.7%). GDP (%) Inflation (%) Unemployment rate Current Account -1.8
Budget Balance
(% total labour force) (% GDP) -2.5 -2.2
(% GDP)
GDP (%) Inflation Unemployment rate Current Account Budget Balance
(% total labour force) (% GDP) (% GDP)
Source: PwC analysis on European Economic Forecast Spring 2017. Unemployment rate as a % of total labour
force, current account balance and budget balance as a % of GDP
11.9 2015 2016F 2017F

11.4 11.3
-4
Current account surplus in Italy is Chart 3: Total investments volume trend
foreseen to be 1.9% in 2017, equal to
the average for European Member
States, but then 1.7% in 2018. Net
exports are expected to marginally
reduce real GDP growth, which,
together with higher prices for 3.6% 3.6% 3.3%
2.7% 2.6%
imported energy, would cause the
gradual drop in the forecasted current 2.9% 2.7% 3.2%
account surplus. 1.6%
-1.5%
Taking into considerations favourable -2.3%
financing conditions and investment
policies efforts, the total investments -6.6
volume trend for Italy is set to
increase by 2.7% in 2017 and 3.3% in 2013 2014 2015 2016 2017F 2018F
2018, therefore filling the gap with
the EU levels. Italy EU
After a small increase from 2016

Source: PwC analysis on European Economic Forecast Spring 2017.
level, supported by the additional
public resources allocated for the
support to the banking sector and Table 1: Government gross debt ratio per country
retail investors, the Government
gross debt ratio is now expected to
Government 2013 2014 2015 2016 2017F 2018F Trend
slightly decline both in Italy and in EU
gross debt 2017-2018F
in the next years (for Italy, the ratio is
ratio (% GDP)
forecasted to be 133.1% in 2017 and
132.5% in 2018).
Italy 129 131.8 132.1 132.6 133.1 132.5
EU 87.4 88.4 86.5 85.1 84.8 83.6
Spain 95.5 100.4 99.8 99.4 99.2 98.5
France 92.3 94.9 95.6 96.0 96.4 96.7
UK 86.2 88.1 89.0 89.3 88.6 87.9
Germany 77.5 74.9 71.2 68.3 65.8 63.3
Source: PwC analysis on European Economic Forecast Spring 2017
PwC | 7
Italian Real
Estate Market
Key Message: In H1 2017, the Italian Real Estate
market registered a 3.1% growth compared to
2016, mainly driven by transactions related to
residential assets. Rome and Milan continue
to be the main city markets, representing ca.
49% of total transactions. Investments in Real
Estate reached €5.7 bn in H1 2017, with offices
continuing to represent the major asset class for
investment.

Volume of Real Estate Residential sales in H1 2017 have While continuing to account for a
transactions in 2017 increased throughout all regions of small proportion of the total, the
Italy with respect to 2016. The North office segment is the sector registering
In H1 2017, the Italian real estate showed the greatest positive results, the highest growth rate, at 9.2%. See
market continued its positive trend, with a 6.4% increase over 2016, which Table 4.
driven mainly by sales of residential was followed by the Centre and the
and office properties. South with 5.5% and 5.3% growth, Appurtenances (including garages,
respectively. See Table 3. basements and parking spots) and
The most significant percentage other sectors are showing a strong
growth, compared to 2016, was During H1 2017, non residential asset decrease, based on provisional data.
recorded in the office building sector, classes showed a slight decrease of
at a 9.2% increase. See Table 2. 1.12% compared to 2016.
Table 2: Italian NTN1 comparison by sector
Q1 Q2 Q3 Q4 Q2 H1 Delta (%)
Asset type Q1 2017 H1 2017
2016 2016 2016 2016 2017 2016 H1 16-17
Residential 115.194 143.298 123.476 146.896 121.976 145.529 258.493 267.505 3,5%
Office 2.025 2.413 2.510 3.000 2.362 2.486 4.437 4.846 9,2%
Retail 6.776 7.598 7.188 9.024 6.215 7.176 14.374 13.393 -6,8%
Industrial 2.121 2.897 2.565 3.704 2.328 2.996 5.018 5.325 6,1%
Total 126.116 156.206 135.738 162.624 132.881 158.187 282.322 291.069 3.1%
Appurtenances2 87.554 110.015 94.007 119.427 85.291 101.566 197.569 186.857 -5.4%
Other 3
30.828 38.687 35.719 44.090 12.663 14.464 69.515 27.127 -61.0%
Source: PwC publication “Real Estate Market Overview – Italy 2017”

1. NTN is the number of standardized real estate units sold, taking into account the share of the property transferred
2. Appurtenances comprehend properties such as basements, garages or parking spots
3. The sector “Other” includes hospitals, clinics, barracks, telephone exchanges and fire stations
PwC | 9
Table 3: Residential NTN by geographic area
Delta (%) Delta (%) Delta (%)

Area Region Year 2016 H1 2016 H2 2016
15-16 H1 15-16 H2 15-16
Provinces 88.946 44.384 46.559 23.7% 26.7% 4.9%
North No Provinces 188.055 89.995 96.473 21.7% 20.4% 7.2%
Total 277.001 134.379 143.032 22.3% 22.4% 6.4%
Provinces 51.325 25.285 26.976 13.5% 17.1% 6.7%
Center No Provinces 56.455 27.589 28.823 18.6% 18.7% 4.5%
Total 107.780 52.874 55.798 16.2% 17.9% 5.5%
Provinces 38.207 19.379 20.277 12.6% 17.8% 4.6%
South No Provinces 93.302 45.829 48.398 8.8% 12.0% 5.6%
Total 131.510 65.209 68.675 9.9% 13.7% 5.3%
Provinces 178.479 89.049 93.811 17.4% 21.9% 5.3%
Italy No Provinces 337.813 163.414 173.694 15.4% 17.6% 6.3%
Total 516.292 252.463 267.505 16.1% 19.1% 6.0%
Table 4: Non residential NTN by geographic area
NTN H1 2017 Delta (%)

Q1 2016 Q2 2016 Q1 2017 Q2 2017 H1 2016 H1 2017
Office H1 16-17
North 1.186 1.413 1.385 1.455 2.599 2.840 9,3%
Center 417 505 573 527 922 1.100 19,3%
South 422 494 404 504 916 908 (0,9%)
4.437 4.846 9,2%

Q1 2016 Q2 2016 Q1 2017 Q2 2017 H1 2016 H1 2017
Retail H1 16-17
North 3.309 3.619 2.843 3.400 6.928 6.243 (9,9%)
Center 1.451 1.700 1.434 1.629 3.151 3.063 (2,8%)
South 2.016 2.279 1.938 2.147 4.295 4.085 (4,9%)
14.374 13.393 (6,8%)

Q1 2016 Q2 2016 Q1 2017 Q2 2017 H1 2016 H1 2017
Industrial H1 16-17
North 1.396 1.867 1.536 1.997 3.263 3.533 8,3%
Center 364 430 381 501 794 882 11,1%
South 361 600 411 498 961 909 (5,4%)
5.018 5.325 6,1%

Investments in the non Chart 4: Investments in the non residential Real Estate industry - Investor type
residential Real Estate market
9,100
In H1 2017, the Italian commercial 17% 8,100
real estate market recorded a 27% 26% 78%
transaction volume of €5.7 bn, 58% 70%
more compared to the same period 83% 60% 80%
5,221 73%
in 2016, confirming the increasing 5,130
investor confidence and demand for 4,383 74% 5.732
Italian real estate.
The investment recovery started in 73%
2013 reaching the highest point in
2016, which has proven to be the 40%
second best year for Italian real estate 1,744 30% 27% 20%
investment after the record level of 413 22%
€10 bn in 2007.
2010 2011 2012 2013 2014 2015 2016 H1 2017
The strong growth was driven by ca.
Italian investors Foreign investors Total investments (€m)
25% increase in the Office sector,
which continues to attract investors
and represent 35% of total volumes Source: PwC publication “Real Estate Market Overview – Italy 2017”
of transactions. The Retail sector
registered an increase of 76% over
the same period. Industrial estates
Chart 5: Investments in the non residential Real Estate industry - Asset type
(+291%) is growing fast, but the lack
of supply across the country obliges
investors to widen their areas of 2016
interest and to concentrate on value 5%
12%
added operations.
Offices
Milan and Rome still represent key 7%
markets for investments, accounting
for 31% and 17% of the total 7% €9.1 bn 44% Retail
investment volumes in H1 2017,
respectively. However, some investors Industrial
have adapted their strategies to
the dynamic market and started to 25%
Tourist
consider secondary locations as well.
H1 2017 Mixed
17%
Other*
35%
13% €5.7 bn
13%
21%
*”Other” includes banks, public administration and sovereign funds
PwC | 11
Legal and
regulatory
framework NPL Guidance: The ECB publication of Guidance
on non-performing loans in March 2017 has
update
created a supervisory pressure on banks to
redefine their NPL strategies and operating
model respectively.
The Addendum to ECB Guidance: on 8th of

December, 2017 ECB closed the public consultation
regarding the Addendum to NPL Guidance to
ensure a proper level of “prudential” provisioning “
in order to reduce risks related to NPL portfolios.

ECB Guidance on NPL Addendum reinforces and supplements the ECB
Guidance on NPL
The Guidance outlines measures, processes and
best practices which banks should incorporate in The Addendum supplements the Guidance with respect
NPL management. It challenges banks to implement to provisioning and write-offs practices, by specifying
comprehensive strategies to work towards a holistic the supervisory expectations with respect to minimum
approach in respect of the NPL problem through levels of prudential provisions applicable to NPEs. The
disclosure of the following areas: provisioning expectations would apply, if the addendum
will enter into force, to new exposures, reclassified from
• NPL Strategy performing to non-performing after January, 1st 2018.
• NPL Governance and operations framework
• Forbearance At the prudential level, the Addendum introduces
• NPL recognition «Calendar Provisioning» with «Prudential provisioning
• Impairment measurement and write offs backstop», equal to 100% after:
• Collateral valuation of immovable property • 7 years of vintage for secured NPEs
• 2 years of vintage for unsecured NPEs
New
In this view, the Supervisor puts a pressure on banks to Provisions
redefine their strategies and revise respective operating
models, taking into consideration the principle of
proportionality. In 2017, many banks have shown Respective Prudential
Art. 3 CRR
progress and submitted their strategies, including the Exp. Losses provisioning
reduction plans, with the objective to increase their shortfall backstop
recovery performance and to comply with supervisory
expectations. Some banks, however, still need to improve. Existing
Provisions
ECB continues to closely monitor the progress of NPL
strategic plans, by reviewing the bank’s capability to
intervene in all phases of the NPL life cycle and through
implementation of best market practices. Own funds deductions
Supervisory
(incl. those on banks’ own
demand
initiative)
NPL Operational Model – Key drivers to maximize the NPL Value Chain
Performing
Past Due UTP Bad Loans
Loans
Early Warning Focus Automatization and

Identification and management of Determination of «ad hoc» strategy, industrialization
positions with high risk and probability with a «one to one» focus on relevant Identification and management of
of impairment positions and actions per cluster of positions with high risk and probability
medium-sized exposures of impairment
Externalization and centralization of “non-core” activity monitoring and

Organizational efficiency
management of the External societies and Legal support
“Triggers” to remain
Review of rules to enter, remain and exit NPL category
in the NPL category
Activation of “one-off” actions aimed at reduction of the stock in particular cases

“Crash” actions
and maximization of recovery
PwC | 13
Banks should report on the compliance with the prudential The Guidelines are consistent with the Guidance
provisioning backstop at least annually and explain published by ECB
deviations to the supervisor.
Less Significant Institutions (LSI) are requested to evaluate
The deviations are acceptable if a bank can demonstrate the adequacy of their organizational structure with respect
that: to given recommendations. Any deviations should be
• the calibration of the prudential provisioning backstop justified upon request of the Supervisory Authority.
is not justified for a specific portfolio/exposure; Banks are expected to have a formalized strategy, defining
• the application of the backstop is not reasonable in the NPL management plan and its integration within the
justified circumstances. bank, comprehensive governance and conflict of interest
management framework and rules of conduct.
The guidelines provide some clear indication to banks
Potential impacts of the Addendum concerning strategies, governance and especially on rules
• Large P&L impact for banks, in terms of provisioning of conduct to be followed.
an amount equivalent to 100% of NPL value
• Facilitation of disposal operations 1 2 3
• Acceleration of recoveries
Rules of
Strategy Governance
Conduct
Potential reduction of the «pricing gap» between
the market and book value of loans • Affordability assessment
Forbearance • Identification of forbearance options
• Monitoring of measures applied
Conclusions
Supervision authorities are monitoring progress on NPL • Indicators to classify loans at default
Loans
reduction, provisioning and developments and on the • Criterias of foreborne exposures
classification • Treatment of group of connected clients
execution of NPL strategies and revisions of operating
models. Impairments • Definition of criterias for impairments
and write offs • Timely write offs of unrecoverable values
Valuation of • Control of independent experts
immovable • Control of property and guarantee value
property at least on an annual basis
• Availability of database to manage the
NPL database NPL data
• Verification of NPL status
Actions to be considered by LSI

Guidelines on NPL management for LSI: in • Review of the target operating model
September Bank of Italy published on consultation
• Identification of a mix of strategy entailing increased
guidelines addressed to national LSI with respect efficiency and possible deleveraging actions
to NPL management.
• Reporting to the Supervisor on the NPL actions and
reduction plan
“The management strategy of NPL has to be fully integrated in strategic and corporate
management procedures, such as the ones referring to industrial/budget planning, RAF, ICAAP,
recovery plans, and intermediary’s remuneration and incentive policies” Linee Guida per le banche
Less Significant italiane in materia di gestione di crediti deteriorati, Bank of Italy

Italian NPL
Market
Key Message: NPL volumes in the Italian banking
sector are definitely declining. After reaching its
peak at the end of 2015, totaling €341 bn, the
NPL total stock decreased to €300 bn (GBV) in
H1 2017. All NPL categories, from Past Due to
Bad Loans, show this trend.
PwC | 15
Asset Quality
Chart 6 shows that total NPL registered a reduction in the Chart 7 illustrates that net Bad Loans reduced to €71
last year and a half. After reaching its maximum at YE 2015 bn (€87 bn at YE 2016). The Bad Loans’ Net NPL ratio
(€341 bn), the stock reduced to €300 bn in H1 2017. followed the same trend and declined to 4.7%
(5.6% at YE 2016).
Gross bad loans dropped by €10 bn in the last six months
(from €200 bn to €190 bn) while Unlikely to Pay and Past
Due declined reaching €104 bn (from €117 bn at YE 2016)
and €6 bn (from €7 bn at YE 2016).
Chart 6: Gross NPE and Bad Loans trend
Amount includes:
• 17.7 bn Unicredit
• 16.8 bn Veneto Banca and Pop. Vicenza
Total NPE (€bn) Gross NPL / Loans to Customers (%) Gross Bad Loans / Loans to Customers (%) • 28 bn MPS
Bad Loans (€ bn) Unlikely to Pay (€ bn) Past Due (€ bn) CAGR
: -8% This column illustrates the projection as at 31
December 2017 of the total NPL volume after
including only NPL outflows incurring from Q3
341 324 2017 onwards (€50 bn). The detail for the market
326 300 transactions is displayed in the last column (€11
2%
: +2 bn UTP and €39 Bad loans).
GR 14
CA 283 12 7
127 6
117 11
237 18 131 104 50
NPL as for YE 2017
194 21 Q3-Q4 2017 market
109 transactions
157 13 39
91
132 12 74 200
85 16 184 200
66 190
57 156 Q3-Q4 2017 market
9 125 transactions
107 UTP Bad loans
33 78 250
59
42
Pro forma YE 2017
2008 2009 2010 2011 2012 2013 2014 2015 2016 H1 2017
4.9% 7.8% 9.3% 11.3% 14.3% 17.8% 21.0% 22.0% 21.1% 19.7%
2.5% 3.5% 4.6% 6.3% 7.5% 9.8% 11.8% 12.9% 13.0% 12.5% Source: PwC analysis data of Bollettino Statistico di
Banca d’Italia and ABI Monthly Outlook
Chart 7: Net Bad Loans Trend
62.6%
56.5%
55.6%
54.0%
50.3% 48.7%
89
42.9% 43.7% 87
84
39.7% 80
34.0% 71
62
60
47
39
60
24 5.4% 5.7% 5.6% 4.7% Net Bad Loans (€bn)
2.8% 3.5% 3.8% 5.0%
1.4% 2.3% Net Bad Loans/Loans to Customers (%)
Bad Loans coverage ratio (%)
2008 2009 2010 2011 2012 2013 2014 2015 2016 H1 2017
Source: PwC analysis data of ABI Monthly Outlook

Looking at the Bad Loans stock Chart 8a: Breakdown of Gross Bad Loans Ratio by region* (H1 2017)
composition:
• in H1 2017 “Corporate & SME” 7.6%
11.6%
continue to represent the greatest
share of gross Bad Loans standing 9.9%
at 73%(Chart 9);
• Lombardy (21.5%) and Lazio 12.6%
(11.8%) regions continue to have 11.4%
the highest concentration of stock, 13.8%
while at the same time Lombardy 11.4%
and Lazio has respectively 11.6% 15.9% 14.7%
and 14.5% of Gross Bad Loans ratio
(Chart 8a and 8b); 16.9% 17.6%
• the Centre and the South of Italy
has the highest percentage of Gross 14.5%
16.4%
Bad Loans ratio (Chart 8a);
17.9%
• Trentino Alto Adige, Friuli Venezia 17.3%
Giulia, Liguria, Umbria, Marche,
Abruzzo and Molise, Calabria and >18%
Sardegna own a percentage of >16% -18% 19.4%
gross Bad Loans lower than 3%
>14% - 16% 19.2%
(Chart 8b);
<14%
• the percentage of secured Bad
Loans is increasing from 48% in
2016 to 49% at H1 2017 Source: PwC analysis on data of “Bollettino Statistico” of Bank of Italy
(Chart 10).
Chart 8b: Breakdown of Gross Bad Loans by region* (H1 2017)
1.6%
21.5%
1.4%
8.8%
6.0%
9.9%
2.0%
8.7% 2.8%
1.8%
2.5%
11.8%
5.1%
2.2%
6.4%
>10%
>5% - 10% 1.7%
5.9%
>3% - 5%
<3%
Source: PwC analysis on data of “Bollettino Statistico” of Bank of Italy

* Unified percentage for 1) Valle d’Aosta and Piemonte, 2) Abruzzo and Molise, 3) Puglia and Basilicata
PwC | 17
Chart 9: Breakdown of Gross Bad Loans by counterparty (H1 2017)
20% 20% 20% 20% 19% 18% 16% 16% 17% 18%
9% 8% 8% 7% 8% 8%
12% 11% 10% 9%
67% 69% 70% 70% 71% 73% 75% 74% 73% 73%
2008 2009 2010 2011 2012 2013 2014 2015 2016 H1 2017
Corporate & SME Small family business Consumer Other**

** “Other” includes PA and financial institutions
Chart 10: Secured Gross Bad loans trend (% on total Bad loans)
Counterparty
49% Corporate & SME
48%
47% 68%
45%
42% Individual
39% 22%
38% 38%
Family business
8%
36% 36%
Other**
2%
2008 2009 2010 2011 2012 2013 2014 2015 2016 H1 2017

** “Other” includes PA and financial institutions

Gross bad loans by macrosector illustrates that constructions On the other side, gross Bad Loans by ticket size shows that
is the macrosector which shows the highest percentage debtor with bad loans between €5 m and €25 m accounts for
of gross bad loans (27.3%), followed by manufacturing 23% on the total amount. More than €25 m for 12%.
products (21.4%) and wholesale and retail trade (16.8%). Debtor with bad loans less than €1 m account for 39% of
total bad loans.
Chart 11: Breakdown of Gross Bad Loans by macrosector Chart 12: Breakdown of Gross Bad Loans by ticket size
2% 2% 4% 0% 12% 3% 4%
2%
5%
16%
21%
10%
0%
1%
23%
4% 1%
1% 8%
2%
17% 9%
27%
12%
14%
Agriculture, forestry and fishing Accomodation services
Mining and quarrying products Information and communication 50 to 30k € 500k to 1mln €
Manufacturing products Finance and assurance services 30k to 75k € 1mln to 2.5mln €
75k to 125k € 2.5mln to 5mln €
Electricity, gas, steam and Real estate
air-conditioning supply 125k to 250k € 5mln to 25mln €
Waste-management and Professional, scientific and
remediation products technical activities 250k to 500k € More than 25mln €
Construction Administrative and
support services
Wholesale and retail trade Other
Transportation and storage
Source: PwC analysis on data of “Bollettino Statistico” of Bank of Italy. Source: PwC analysis on data of “Bollettino Statistico” of Bank of Italy.
PwC | 19
Focus: UTP Chart 13a: Breakdown of UTP ratio by region* (H1 2017)
6.3%
Looking at the UTP and Past Due stock 7.9%
composition in H1 2017:
4.9%
• the UTP breakdown by region
shows the highest levels in
Lombardy (27.2%) and Lazio 6.4%
4.0%
(12.9%), which correspond to a
7.2%
UTP ratio equal, respectively, to
7.9% and 8.5%; 10.5%
7.6% 8.2%
• Friuli Venezia Giulia, Umbria,
Abruzzo and Molise, Calabria and 7.6% 6.7%
Sardegna own a percentage of UTP
lower than 2%. 8.5%
6.2%
7.1% 9.4%
> 9%
>7% - 9% 6.3%
>5% - 7%
<5% 7.4%

* Unique percentage for 1) Valle d’Aosta and Piemonte, 2) Abruzzo and Molise, 3) Puglia and Basilicata
Chart 13b: Breakdown of UTP by region* (H1 2017)
2.5%
27.2%
1.3%
8.4%
3.9%
9.6%
3.4%
7.7% 2.9%
1.5%
1.7%
12.9%
1.6% 6.5% 3.6%
>10%
>5% - 10% 1.0%
>3% - 5%
<3% 4.2%

* Unique percentage for 1) Valle d’Aosta and Piemonte, 2) Abruzzo and Molise, 3) Puglia and Basilicata

Key Message: In H1 2017 data on firms’ closures pointed out the fact that the Italian industrial system is
launched towards a recovery phase.
The most encouraging figure is represented by the robust Chart 15: Bankruptcies by type of company
drop in the number of bankruptcies. During H1 2017, 6,284
1.9% 1.6%
Italian firms went bankrupt, 15.6% less than the same
period in 2016.
This improvement is shared across all Italian regions and -4.1%
all economic sectors, with a favourable tendency in the -8.9%

industrial sector, which was already widely above pre-crisis
-15.9%
level. On the other hand, despite the ongoing recovery
process, the number of bankruptcies in the sector of -21.4%
construction still stands at historically high level.
Limited liability company (%) Partnership (%) Other (%)
The bankruptcies downturn has been going on for the H1 2016 H1 2017
seventh quarter in a row. This reduction pertained to all
firms’ type of company: first, partnerships (-21.4% respect Chart 16: Non-bankruptcy procedures by macrosector
to the same period of 2016), then limited liability companies
(-15.9%) and other types of company (-8.9%).
The reduction in non-bankruptcy procedures, that started

2 years ago, hasn’t stopped. Taking into account this fact,
the total number of insolvency procedures different from -15.2%
-14.2%
-16.2%
bankruptcy grew to 822 in the first half of 2017, representing
a 15.9% reduction if compared to the 977 of 2016. This drop
-22.4%
is strongly driven by the decrease in the composition with -25.2%
creditors measures. Overall the industrial sector decreased -28.4%
of 22.4%, followed by constructions with a value of less
15.2%, and services, with 14.2%.
-36.5% -37.5%
After a negative trend in 2016, H1 2017 shows a reduction Construction (%) Industrial (%) Services (%) Other (%)
in voluntary liquidations, decreasing at stronger rates H1 2016 H1 2017
with reference to partnerships (-3.8%) and limited liability
companies which operate on the market (-9.2%), which Chart 17: Liquidations by type of company
revert the 2016 trend (+1.6%). Viceversa, the number of
35.5%
liquidations for registered but non operating companies is
increasing (+35.5%).
20.4%
Chart 14: Insolvency procedures
2.2%
1.6%
-2.7% -2.5%
-0.6%
-3.8%
-9.2%
-15.6% -15.9%
Limited liability company (%) Partnership (%) Other (%)
H1 2016 H1 2017
-29.9%
Bankruptcy (%) Liquidation (%) Other procedures (%) Source: Osservatorio su fallimenti, procedure e chiusure di imprese, Cerved
H1 2016 H1 2017
PwC | 21
Italian Banks
Overview
Key Message: Improvements in the European
and Italian banking industry are a different
matter altogether, they require a deeper and
more thorough approach, to be pursued through
structural reforms designed to reduce inefficiencies
and address the issue of non-performing loans.

Recent Events
• After a 10-months stop, at the end of October 2017, MPS • In Q4 2017 several important NPL deals took place.
has returned to be traded at Piazza Affari. A Decree from Banca Carige closed the sale of a €1.2 bn mixed secured -
the Italian MEF on the Treasury is expected to purchase unsecured NPL portfolio with Credito Fondiario together
the MPS’ shares held by the former subordinated with the servicing platform. Banca Etruria, Carichieti,
bondholders, who have seen their bonds being converted Cariferrara and Banca Marche sold their €1 bn secured
into shares after the burden sharing. portfolio to Cerberus. Cassa di Risparmio di Cesena,
Cassa di Risparmio di Rimini and Cassa di Risparmio di
• At the end of June 2017, ISP acquired, at a symbolic price
San Miniato closed with Quaestio Capital SGR the sale of
(€1), part of the assets and liabilities of Banca Popolare
€2.7 bn of NPLs.
di Vicenza and Veneto Banca, excluding their NPL, which
are aimed to be transferred to S.G.A. (Società per la
Gestione di Attività).
Chart 18: Net Bad Loans and Equity for the Top 10 Italian Banks
231%
13.9
11.8
66%
56% 59% 56%
7.0
41% 6.9 Net Bad Loans (€bn)
25%
21% 4.0
3.2 13% Net Bad Loans Equity
26% 2.9
0.3 Ratio (%)
1.2 1.3
UCG ISP MPS UBI BNL BPER Cariparma Credem Banco BPM Carige
Financial Statements as of H1 2017. BNL data as of YE 2016. Data affected by different write-off policies
Chart 19: Gross NPE and Texas ratio for the Top 10 Italian Banks
148%
138%
125%
69.2 114%
104%
106% 101%
54.6
45.5
85%
77%
60% 28.0
Gross NPE (€bn)
14.4 13.1 11.0 Texas Ratio (%)
5.0 1.4 7.2
UCG ISP MPS UBI BNL BPER Cariparma Credem Banco BPM Carige
Source: Financial Statements as of H1 2017. BNL data as of YE 2016. Data affected by different write-off policies
* Texas ratio defined as the ratio between total Gross NPE and the sum of CET1 and provisions
PwC | 23
Chart 20 illustrates the Top 10 Italian Chart 20: Top 10 Italian Banks – NPL Peer Analysis as of H1 2017
banks in terms of the gross NPL Ratio Gross NPL Ratio (%)
and the NPL Coverage Ratio. As
shown the average for the two ratios 70%
considered is respectively 19.1% and
UCG MPS
50.7%. The differences comparing the 65%
NPL Coverage Ratio (%)

different banks are clearly significant.
On one side MPS shows the highest 60%
Gross NPL ratio reaching 36.3% BNL
while, on the other side, Credem 55%
stands at the lower extreme of 5.8%. Average= 50,7%
ISP Banco BPM
Considering the NPL coverage ratio 50%
Carige
MPS shows again the highest value
45%
(65.7%) and UBI the lowest (41.5%). Credem
Cariparma UBI BPER
However, we note that the coverage
40%
ratio is not directly comparable as it
is influenced by several factors which
35%
vary among the different banks (such
Average= 19,1%
as policies on write-offs, level of 30%
collateralization of the loans, vintage 0 5% 10% 15% 20% 25% 30% 35% 40%
of the portfolio).
Bubble size: Gross NPL
Source Financial statements as of H1 2017. BNL data as of YE 2016. Data affected by different write-off policies
Chart 21 shows the gross Bad Loans Chart 21: Top 10 Italian Banks – Bad Loans Peer Analysis as of H1 2017
Ratio and the Bad Loans Coverage
Ratio for the same Top 10 banks. MPS Gross Bad Loans Ratio (%)
reaches the highest gross Bad loans 85%
ratio with 24.9%, while the average
Gross Bad Loans Coverage Ratio (%)

MPS
80% UCG
is 12.0% (Credem stands at 3.6%).
The relative coverage ratio indicates 75%
two opposite peaks: 77.5% with MPS
and 46.3% with UBI (the average is 70% Carige
BNL
62.8%).
65% ISP
Average= 62.8%
60% Credem
Banco BPM
Cariparma
55% BPER
50% UBI
45%
Average= 12%
40%
0% 5% 10% 15% 20% 25%
Bubble size: Gross Bad Loans
Source: Financial statements as of H1 2017. BNL data as of YE 2016. Data affected by different write-off policies

Chart 22 focuses its analysis for Chart 22: Top 10 Italian Banks – Unlikely to Pay Peer Analysis as H1 2017
Unlikely to pay. The average for the
UTP ratio is 6.9% while 30.7% for the Gross Unlikely to Pay Ratio (%)
Coverage ratio. The Gross Unlikely
to pay ratio shows a gap of almost
48%
13% considering Carige (15.1%)
Unlikely to Pay Coverage Ratio (%)

UCG
and Credem (2.1%). The situation is MPS
43%
different comparing the Unlikely to
UBI
pay ratio: at the top we find UGC with
38%
43.6% while Credem is at the bottom BNL
with 15.6%. 33% Avarage= 30.7% ISP
Banco BPM
28% Carige
BPER
23% Cariparma
18%
Credem
Avarage=6.9%
13%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18%
Bubble size: Gross Unlikely to Pay
Chart 23 shows the Past Due ratio and Chart 23: Top 10 Italian Banks – Past Due Peer Analysis as of H1 2017
the coverage for the banks analyzed.
MPS records the highest Gross past due Gross Past Due Ratio (%)
ratio (0.6%) while ISP and Banco BPM 40%
the lowest (0.1%). The average stands
at 0.3%. Differently the gap is bigger UCG
35%
considering the past due coverage
Past Due Coverage Ratio (%)

ratio with an average of 17.6%. UGC 30%
MPS
and BPER stand at the extremes with
respectively a coverage ratio of 34.4% ISP
25%
BNL
and 7.9%.
Credem
20%
Banco BPM
Average= 17.6%
15% Carige
UBI
10%
Cariparma
BPER
5%
Average= 0.3%
0
0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% 0.7%
Bubble size: Gross Past Due
PwC | 25
Chart 24 illustrates the movements Chart 24: Top Italian Banks – Bad Loans movements (YE 2016 vs H1 2017)
in the Gross Bad Loans Ratio and the
H1 2017 YE 2016
Bad Loans Coverage Ratio between
2016 and 2017. In H1 2017 the average Gross Bad Loans Ratio (%)
Bad loans ratio is 12.0%, whereas the 80%
coverage ratio stands at 62.8%. The 75%

MPS
analysis indicates that ISP (-12.7%), UCG
Bad Loans Coverage Ratio (%)

70%
UBI (-10.3%) and UCG (-10%) have Carige
improved their gross Bad loans ratio. 65% Average= 62.8%
Looking at the coverage level, Banco 60% Credem Banco BPM

ISP
BPM (+30.9%) and MPS (+19.6%) Cariparma
55%
recorded higher coverage on gross Bad BPER
loans compared to YE 2016. 50%

UBI
45%
40%
Average= 12.0%
35%
0% 5% 10% 15% 20% 25%
Source: : Financial Statements as of H1 2017 and YE 2016. BNL not included as data H1 2017 not available.
Data affected by different write-off policies
Chart 25 shows that, with respect to Chart 25: Top Italian Banks – Unlikely to Pay movements (YE 2016 vs H1 2017)
YE 2016, ISP (-12%), UCG (-11.9%)
and Cariparma (-10.7%) experienced H1 2017 YE 2016
the largest decreases in the Unlikely to Gross Unlikely to Pay Ratio (%)
45%
Pay NPL Ratio, while UBI (+60.3%) UCG
and Carige (-1.6%) had, respectively, MPS
Unlikely to Pay Coverage Ratio (%)

the highest and the lowest change in Average= 30.7% UBI
the coverage ratio. In H1 2017 the Banco BPM
30% ISP
average Unlikely to Pay NPL Ratio BPER Carige
stands at 6.9%, while the Unlikely to
Pay Coverage ratio is 30.7% (compared
to YE 2016, the average changes are, 15%
Cariparma
respectively, -6.1% and +8.3%). Credem
Average= 6.9%
0%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18%
Source: Financial Statements as of H1 2017 and YE 2016. BNL not included as data H1 2017 not available.

Chart 26 illustrates the trends in the Chart 26: Top Italian Banks – Past Due movements (YE 2016 vs H1 2017)
Past Due ratio and Past Due Coverage
H1 2017 YE 2016
ratio. In H1 2017, the Past Due ratio Past Due Ratio (%)
stands at 0.3%, whereas the Past Due
Coverage ratio is 17.6%. In 2017 UBI
UCG
have a high increase in the Past due
30%
Ratio (+65.8%), while most banks
Past Due Coverage Ratio (%)

MPS
experienced a strong reduction, ISP
with the largest reductions for ISP Average= 17.6%

(-28%), MPS (-27.5%) and Cariparma
Banco BPM
(-21.5%). Credem
Carige
15%
Cariparma UBI
BPER
Average= 0.3%
0%
0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6%
Source: Financial Statements as of H1 2017 and YE 2016. BNL not included as data H1 2017 not available.
Chart 27: Top Italian Banks – Relation between MarketCap/TBV and NPL ratio
160%
MarketCap / TBV
IFIS*
140%
120% CREDEM
100% ISP
80%
60% PopSo
UCG UBI BPM Banco Popolare

40% BPER
CreVal
20%
Carige MPS*
0%
0% 5% 10% 15% 20% 25% 30% 35% 40%
NPE / tot. loans (GBV)
Source: Financial Statements as of H1 2017.

* Data as at YE-16
PwC | 27
Focus on UTP
Italian market
Key Message: Unlikely to Pay exposures are the
new challenge for the Italian banks. As at 30
June 2017, the UTP volumes are still lower than
Bad Loans in terms of GBV (€104 bn vs €190 bn).
However, for the Italian banks (which qualify for
77% of total UTP exposures), the UTP volumes
are by now overcoming bad loans in terms of NBV
(€52 bn vs €50 bn). Only by a renewed proactive
management of these exposures, the Italian banks
could find the most effective deleverage solutions
to address the issue of their volumes.

Our view
ECB guidelines provide a great opportunity refresh and The proactive management of UTP should cover three main
improve the proactive management of NPE in order to issues: (i) data quality and preliminary strategic portfolio
address the issue of their massive stock. segmentation, (ii) accurate analysis of the borrowers
and integrated single names’ management and (iii)
Moreover the reform of the bankruptcy law and the implementation of the most appropriate strategic option
introduction of the IFRS9, in place from 1 January to identify among forbearance measures, cash injection
2018, will lead to an «early warning» and «forward (equity/ debt) even through third investors, loan sales and
looking» approach, which could likely result in higher liquidation procedures.
reclassification of performing loans to NPE/UTP and
overall higher provisions. In other words, the proactive management of UTP is
without a doubt a complex issue entailing and requiring
Only by focusing the efforts on the proactive management due diligence, data quality, restructuring, turnaround
of their UTP exposures, the Italian banks could aim at management and M&A/special situation expertise.
deleveraging their UTP, through higher collection, higher cure
rates to performing loans, lower danger rates to bad loans.
In H1 2017, the UTP exposure amounted to €104 bn of which 77% is concentrated within the Top 9 Banks
€bn
23% 100%
23.8 104
52% 2% 0%
3%
4% 1.9 0.5
6% 3.2 -4% vs. PY
3.7 n/a vs. PY -17% vs. PY
10%
6.3 -8% vs. PY
+8% vs. PY
10.5
13% -14%vs. PY
13.5
-16% vs. PY
18%
18.8
-14% vs. PY
21%
21.8
-10% vs. PY
UniCredit Intesa MPS Banco UBI BPER Carige Cariparma Credem Others GBV total
Sanpaolo BPM 30Jun2017
31.4% 34.4% 29.6% 37.7% 44.8% 33.7% 44.5% 38.1% 35.8% Gross UTP/Gross NPE
13.9% 12.9% 36.3% 22.6% 14.1% 21.1% 33.9% 11.7% 5.8% Gross NPE Ratio
Source Financial statements as of H1 2017. BNL out of the analysis perimeter due to no publication of 1H financial results
PwC | 29
UTP Coverage ratios vs. Gross
UTP ratios
Top 10 Italian Banks on average show

In H1 2017 the Top 10 Italian banks on average maintained
provisions of UTP in H1 2017 in line
with 2016. In H1 2017 the average ratio their provisions of UTP in line with 2016. As at 30 June 2017
was equal to 30.4% vs 30.8% in 2016. their average coverage ratio is 30.1% while their ratio on total
In particular, UniCredit and Intesa loans is 7.0%.
Sanpaolo, both below the average Gross
UTP ratio (4.4% and 4.5% respectively),
increased their UTP provisions reaching Chart 28: Top 10 Italian banks
UTP coverage 43.6% and 28.0%,
respectively, as at 30 June 2017. MPS, Bubble size: Unlikely to Pay
third group in terms of UTP exposures
UTP Coverage ratio H1 2017
gross exposure H1 2017

50% UCG
in H1 2017, showed gross UTP ratio MPS

Bubble size: Unlikely to
Pay gross exposure 2016
45%
(10.8%) lower than ratio in 2016
YoY shift (YE 2016- H1 2017)
(11.5%) and with an average UTP 40%
coverage of 40.8% in H1 2017 compared BNL
to 40.3% in 2016. Ratios of Banco 35% (**)
Banco BPM (*)
BPM (calculated as sum of the figures Avg. H1 2017 Top 10 (30.1%)
30% ISP
of the single entities, Banco Popolare
and Banca BPM for 2016 data, merged 25% Carige
together in Banco BPM from 1 January BPER
2017) showed a reduction of the gross 20% Cariparma UBI

CREDEM
UTP ratio (8.5% in H1 2017 vs 9.5% in
15%
2016) as well as the growth of the UTP
Avg. H1 2017 Top 10 (7.0%)
coverage (31.5% in H1 2017 vs 28% 10%
in 2016). UBI recorded a significant 1% 3% 5% 7% 9% 11% 13% 15% 17%
increase in provisions of UTP (coverage Gross UTP ratio H1 2017
ratio from 23.3% in 2016 to 34.3% in (*) Ratios of Banco BPM as at 31Dec16 were calculated as sum of the figures of Banco Popolare and BPM (merged
H1 2017). together in Banco BMP from 1 January 2017)
(**) BNL UTP exposure as at 31Dec16

Inflows and outflows
In 2016, total outflows of the Top 20 Italian banks slightly

decreased from €51.1 bn to €49.9 bn primarily driven by
lower outflows to bad loans: 23% in 2015 vs 21% in 2016. (*) Despite decreasing outflows to bad loans (-2%)
and inflows from performing loans (-5%),
The inflows in 2016 decreased as well (from €52.1 bn to
41.5 bn) mainly due to the lower inflows from performing 57% of UTP in 2016 remained as such. The
exposures. (*) UTP challenge lies in the management of their
massive stock.
As for the outflows, the UTP gauged a firm decline of inflows
from performing loans over the last 2-year period: 23% in
2015 vs 18% in 2016.
UTP which remained UTP in 2016 amounted to €61.8 bn

i.e. 57%, proving how the main issue for the Italian UTP lies
mainly in their massive stock and a management not yet able
to target deleveraging solutions.
In particular, according to Bank of Italy, 62.5% of the

restructuring agreements (which qualify a significant portion
of the UTP exposures) after 3 years are still in place (49%
after 4 years) and did not result in a positive and conclusive
outcome (i.e. after 4 years 40.9% of the restructuring
agreements resulted in liquidation/bankruptcy procedures).
Chart 25: Unlikely to Pay inflows and outflows from 2014 to 2016 - Top 20 banks FY16 (€bn)
Inflows Inflows
Outflows 52.1 Outflows 41.5
(51.1) (49.9)
115.9 116.9 108.5
(5%) (5%)
10%
9%
(13%) (12%)
13%
8%
(21%)
(23%) (4%) 18%
(4%) 23%
Remain UTP
Remain UTP
56% 57%
Exposure To Collected To bad loans Others From From non Other Exposure To Collected To bad loans Others From From non Other Exposure
31Dec14 performing performing performing inflows 31Dec15 performing performing performing inflows 31Dec16
In/Outflow
% flows =
Initial exposure
(*) Inflows and outflows in 2016 for ICCREA and Banca Findomestic were estimated equal to the flows occurred in 2015 (to date their financial statements as at 31Dec16 are not
yet available)
PwC | 31
Our view on the available strategies for UTP
The strategic options identified through the on going due

diligence carried out by the banks on the borrower’s case
could result in the return of the loan in the performing Following the improved proactive
category or in the sale of the loan or in the classification management, banks could identify the most
of the exposure as bad loans (thus requiring the prompt effective and efficient solutions to deleverage
liquidation of the borrower’s asset through judicial
procedures).
their UTP (e.g. return to performing,
collection) among several strategic options.
Sale of UTP could even be executed through portfolio Solely a proactive management of UTP could
transactions which require preliminary strategic lead to the right “tailor made” strategic
segmentation to maximize loans’ value for the banks. solution.
Potential return to performing
Forbearance measures Loan sale

• Grace period / Payment moratorium • True sale (full derecognition purposes)
• Extension of maturity / term • Securitisation (to attract wider
• Debt consolidation ng investors’ base)
cturi Lo
an
• New credit facilities tru • Partial loan transfer (to share risks and
• Recovery plan ex art 67 Italian opportunities with new investors)
s
sa
t re
le
Bankruptcy Law
Deb
• Debt restructuring ex art 182bis

• Italian Bankruptcy Law UTP proactive
management Liquidation procedures
N e w c ti o n
I nje
Investor’s equity injection / • Voluntary liquidation of collateral by

s
d u re
underwriting of senior debt the debtor (also foreseen within the

in v / s
• Industrial partner to revamp and forbearance measures)

ce
es e
r’
to
ro
establish the underlying borrower’s ni s c a n

p • Judicial procedures to sell the
o r p it a io
business (long term approach) deb l d at borrower’s (guaranteed) asset after
• Financial partner to inject cash within a t Liq ui preliminary assessment of liquidation
strategic exit plan (short/medium term value and timing of the procedure
approach)
Classification to bad loan

Forbearance as a relevant measure for the
proactive management of UTP
The ECB guidance emphasizes that the main objective

of forbearance measures is to allow debtors to exit their Italian banks should improve their loans’
non-performing status or to prevent performing borrowers restructuring procedures throughout an
from reaching a non-performing status. Therefore, the appropriate and more effective “case by case”
guidance actively addresses the theme, by guiding banks analysis of the financial difficulty of the
in the identification of the optimal balance of forbearance
measures aimed at granting the exit from short- and long-
borrower.
term difficulty status of the debtor. In particular, on the
basis of the type of difficulty of the debtor, either short- or
long-term forbearance measures (or a combination of the
two) maximizing recoveries shall be identified, by granting,
simultaneously, the sustainability of the adopted measures
(e.g. debt service capacity).
Main forbearance measures(1) – Application examples
Intervention
Adoption of short-term measures Adoption of long-term measures
area
• Temporary • Temporary
financial difficulty payment of • Excessively high
• Permanent reduction
of minor entity interest only interest rates for
Interest of interest rates
to be overcome (no capital the debtor
within 24 months reimbursement)
• Temporary financial • Temporary • Misalignment

• Rescheduling of
difficulty of reduction of between
amortization plan
moderate entity to instalment repayment plan
Instalments (e.g. partial, bullet,
be overcome within amount and reimbursement
step-up)
24 months • Full interest capacity of the
payment debtor
• Temporary
• “Grace period”
financial difficulty • Excessively high
for the payment • Extension of debt
of moderate/ instalments for the
Maturity of interests and maturity
serious entity to debtor
capital
be overcome within
24 mo.
• Voluntary disposal
of collateral by the
Collateral
debtor
= financial situation of the debtor = applicable forbearance measure
(1) In addition to debt forgiveness and/or arrears capitalisation options
In particular cases it is possible to

adopt new credit facilities or debt
consolidation measures
PwC | 33
Our view on the requirements arisen from the
adoption of IFRS9 for the Italian banks
The transition to IFRS 9 (from IAS 39) will be critical

as banks will be required to accrue provisions based on
expected losses and not only upon the occurrence of
specific events (e.g. “impairment tests”). Banks will be
asked to adopt a “forward looking” approach and as such to Key Message: Starting from 2018, we expect
anticipate losses at the first signals of deterioration. that a higher portion of loans might be at
risk to be reclassified in loans’ higher risk
As a result, specific instruments as well as right structure categories following the introduction of a
and skilled people to proactively monitor borrowers’
different valuation approach with IFRS9
performances will be required.
(from “ex post” to “forward looking”).
Classification Impairment
New classification criteria will lead to 3 new classes • New impairment criteria, based on the “expected loss”
of loans (“Hold to collect”, “Hold to collect and sale”, and “forward looking“ approach, will result in certain
“Trading”). The need to properly classify their exposures portions of the current portfolio classified in loans’
will require the bank to review and strategically refine higher risk categories (e.g. from performing to UTP/bad
their business model associated to the loans’ management: loans).
• On the one hand, for the “portfolio to hold”, banks • Higher impairment (by collective and analytical
should strenghten the internal credit monitoring provisioning) will result through the “forward looking”
functions in terms of expertise as well as of renovated approach which will move up losses to be incurred over
tools of credit risk measurement (e.g. KPI, index, the loans’ lifetime.
advanced CRM solutions).
• Need to foresee the lifetime losses will require the banks
• On the other hand, for the “portfolio to sell”, banks to implement proactive actions to preliminarly assess
should implement specialised units in charge of the borrowers’ likelyhood to pays their debts along with
structuring and execution of loans’ sale transactions avoid further danger rate from performing to UTP and
(e.g. data preparation and remediation, securitisation). bad loans.

The Servicing
Market
Key Message: Recent M&A activity in the
NPL Servicers’ Industry has strengthened the
competitive position of market leaders, increasing
the number of players with robust industrial and
financial capabilities, able to manage large-scale
partnerships with Banks. After recent deals,
new strategic agreements between Banks and
Specialised Servicers are expected in 2018. Next
M&A wave will involve Debt Collection Agencies.
On-going business model innovation: from NPL
Servicing to Specialty Finance?
PwC | 35
Key dynamics in H2 2017 • diversification opportunities in adjacent credit
management segments:
In H2 2017, the evolution of the credit management sector • unlikely to pay: new focused models able to assure
has continued, based on the key trends we highlighted in a proactive management of NPE advisory;
the mid-year edition our NPL Report. Increasing volumes • delinquency management services for small
of portfolio disposals from banks to Investors and strategic tickets: the “industrial” model well established
outsourcing of NPL banking platforms drive the growth of for the pre-charge off positons of consumer credit
specialized NPL servicers (latest deal, Credito Fondiario: specialists might be applied to small ticket banking
acquisition of NPL Unit and servicing partnership with positions in the early delinquency stages;
Carige). The leaders are gaining market share due to
“jumbo deals”. Many financial and strategic investors • performing loan management: increasing
aim at developing integrated industrial capabilities, opportunities for performing loans portfolio
both through external and internal growth initiatives disposals are likely to generate demand for
(latest deal, Lindorff-Intrum: acquisition of CAF). In the independent servicing offers.
DCA (Debt Collection Agencies) segment, increasing
competition is reducing margins for third parties business, From NPL Servicing to Specialty Finance?
pushing for cost reduction initiatives and business model
evolution. The structure and trends (fragmentation,
decreasing returns) of the servicing market generate fertile In such a context, considering the on-going major changes
conditions for consolidation: opportunities exist for both in the Italian financial and banking environment, the
vertical integration of strategic/financial players (captive Servicing Leaders (in terms of financial and strategic
models) and the development of new ‘independent’ capabilities) have the opportunity to redefine the
servicing platforms. competitive arena in which they operate and develop
new business models. As an example, players that
operate as banking institutions have the chance to
Our outlook for 2018 leverage the regulatory and funding platforms to develop
comprehensive and “sophisticated” approaches in NPL
and UTP, both in financial (from purchase to refinancing)
In our outlook for 2018, we see further consolidation of the and industrial terms (from special to master servicing).
trends mentioned above, with a potential acceleration of New “challengers banks” with a focus on specialty finance
the following dynamics: (including specialized lending and credit portfolio
• strategic sale or outsourcing of NPLs banking management, both performing and non performing) are
platforms, due to market and regulatory pressures: likely to develop attractive and highly profitable value
following Creval, MPS and Carige deals, other banking propositions.
Groups might consider strategic initiatives with
NPL Specialists to extract value, in the short and/or

medium-long term, from their workout units;
• continuing M&A transactions, with increasing focus in
the DCA segment: after intense transaction activities
regarding the leading NPL Servicers in the last 24
months, the next deal phase is likely to involve debt
collection agencies;
• emerging opportunities in new specialized
segments: active real estate services, including
ReoCo management; master and special servicing
specialization in the leasing NPL segment (following
recent changes of the securitization legal framework)

Table 5: Main transactions in the servicing sector
2013
Italfondiario Cerved
Acquisition of a Acquisition of
minority stake Tarida, specialized
in BCC Gestione in consumer finance
crediti from collections vith
ICCREA 1.9bn AuM an
250k tickets
2014
Hoist Finance Banca Sistema Cerved

Acquisition of Acquisition of 2 Acquisition of
100% of TRC servicing platform 80% of Recus.
from private Candia & Sting from Specialized in
shareholders. private shareh and collection for telcos
Specialized in merger (CS Union) and utilities
consumer
finance
2015
Fortress Lonestar Cerved
Acquisition of Acquisition of Acquisition of 100%
UniCredit captive CAF a servicing of Fin. San Giacomo
servicing platform platform with €7 bn part of Credito
(UCCMB) AuM from private Valtellinese group
shareholders
2016
Cerved + BHW Axactor Lindorff Arrow Kruk doBank Dea Capital
Bausparkasse Acquisition of CS Acquisition of Acquisition of Acquisition of 100% Acquisition of Acquisition of
Long-term Union from Banca CrossFactor, a small 100% of Zenith of Credit Base 100% of 66,3% of SPC
industrial Sistema factoring and credit Service, Italfondiario Credit Management
partnership for servicing platform a master
the management servicing
of 230 €m of platform
NPL originated
by the Italian
branch of BHV
Bausparkassen AG
2017
Kkr Lindorff Bain Capital Varde Cerved + BHW Davidson Cerved + Quaestio
Acquisition of Acquisition of Acquisition of Acquisition of Bausparkasse Kempner Acquisition of the
Sistemia Gextra, a small 100% of HARIT, 33% of Guber Long-term industrial Acquisition of credit servicing
ticket player from servicing platform partnership 44.9% of Prelios platform (a.k.a.
doBank specialized in extension for the and launch of “Juliet”) of MPS
secured loans management of a a mandatory
portfolio of loans of tender offer
1.5 €bn originated
by the Italian
branch of BHV
Bausparkassen AG
Cerved Intrum/ Lindorff Credito Fondiario

Acquisition of a Acquisition of 100% Acquisition of NPL
NPL platform of of CAF servicing platform of
Banca Popolare di Carige
Bari
PwC | 37
Table 6: Overview of main servicers (data at 30/06/2017) – Ranking by Revenues
Revenues H1 Special Servicing Servicing

Bank of Italy Master Servicing Ebitda H1 2017
Company 2017 Total Bad Loans1 Other NPLs AuM2 Performing AuM
Surveillance AuM (€bn) (€m)
(€m) AuM (€bn) (€bn) (€bn)
doBank3 Bank 104.8 77.5 1.5 1.8 46.7 30.3

Cerved Credit Management 106 46.0 12.1 1.5 11.7 - 11.9
MBCredit Solutions 106 39.5 5.0 - - - 18.4
Fire 115 20.8 2.4 0.5 0.4 - 1.0
Guber 115 18.9 8.9 - - - n.a.
Advancing Trade 106/115 16.9 4.3 - - - 3.3
Credito Fondiario Bank 16.9 1.2 1.3 1.4 13.6 n.a.
FBS 106 12.7 8.0 0.1 - - n.a.
Cribis 115 12.0 2.1 12.9 7.6 - n.a.
CAF 115 11.5 7.6 - 0.2 - 4.2
Hoist Italia 115 10.6 7.8 - - - 0.1
Sistemia 115 10.04 5.3 - - - 2.4
Aquileia Capital 106 9.7 1.2 0.2 0.0 - n.a.
Europa Factor 106 9.3 1.8 - - - 2.2
Officine CST 115 6.0 1.5 - 0.9 - 2.3
Bcc Gestione Crediti 106 6.0 2.6 - - - 1.1
Prelios Credit Servicing 106 5.2 4.0 - - 6.2 (0.2)
Axactor 106 4.5 0.8 0.1 - - 0.3
AZ Holding 115 4.4 1.3 - - - 1.7
Aurora RE 115 4.2 0.2 0.7 0.2 - n.a.
Fides 115 4.0 0.6 0.0 0.1 - n.a.
CSS 115 3.8 1.2 - 0.3 - 0.3
SiCollection 115 2.8 0.6 0.2 0.0 - n.a.
Frontis NPL 115 2.3 2.6 - - - 1.1
Phoenix Asset Management 115 2.1 9.0 - 0.1 - 1.1
Gextra - Lindorff group 115 1.8 0.4 0.0 0.0 - n.a.
Centotrenta Servicing 106 1.5 - 0.1 - 6.7 0.2
Blue Factor 106 1.1 1.6 - - - 0.4
Primus Capital 115 0.6 0.4 - - 0.1 n.a.
Bayview Italia 115 n.a.7 3.7 - - - n.a.
Kruk Italia 115 n.a. 7
2.7 - - - n.a.
Parr Credit 115 n.a.7 0.3 0.2 - - 2.2
Serfin 115 n.a. 7
0.6 0.1 0.7 - n.a.
Zenith Service 106 n.a.7 - 0.7 6.8 17.0 3.2
Finanziaria Internazionale 106 n.a. 7
0.3 0.6 4.2 35.5 5.5
Link Financial 106 n.a.7 2.1 0.1 0.1 - n.a.
Certa Credita 115 n.a.7 - 0.1 - 0.4 0.5
Source: PwC analysis on data provided by Servicers as of 30/06/2017; data have been directly provided by Servicers and have not been verified by PwC. Servicers present
highly heterogeneous organizational, industrial and operating structures. Comparing the information presented above requires a correct analysis and understanding of the
competitive landscape and servicers business model
1 Includes both owned and third parties portfolios
2 Includes Unlikely to Pay + Past Due more than 90 days
3 doBank group figures include Italfondiario
4 Sistemia Revenues forecast at 31/12/2017 received has been divided by 2
5 Officine CST is specialised mainly in PA credit servicing
6 Debt purchasing activities are conduced via Special Purpose Vehicles
7 H1 2017 data have not been provided by Servicers, at 31/12/2016 revenues were equal to: Parr Credit 20€m; Serfin 19€m; Zenith Service 12€m; Finanziaria Internazionale
10€m; Link Financial 4.9 €m; Certa Credita 1€m; Not available data for Kruk and Bayview
Note: Double counting may arise when adding NPL AuM as some servicers outsource part of their portfolios to others due to capacity and/or specialization issues

Main activities
Net Equity H1 2017 Rating
NPL servicing Debt Collection Debt purchasing Master servicing
178.0 a a a
31.4 a a a
125.7 a a a
11.9 a a a
n.a. a a a
7.3 a a a
87.7 a a a a
5.4 a a a
n.a. a
4.0 a a
0.3 a a a6
2.4 a
n.a. a a6
n.a. a a
7.8 a 5
4.5 a a
7.8 a a a
7.7 a a
n.a. a a
n.a. a
n.a. a
1.3 a a
0.7 a a
n.a. a a
2.0 a
n.a. a
3.1 a a
2.7 a a
n.a. a
n.a. a
n.a. a a a6
n.a. a
n.a. a
6.5 a a a
11.5 a a a a
- a a
1.0
PwC | 39
Table 7: Breakdown of servicer’ Total Bad Loans AuM1 (data at 30/06/2017) – Ranking by Revenues2
Revenues Total Bad Loans Average

Company Secured4 (%) Unsecured4 (%)
H1 2017 (€m) AuM (€bn)1 Ticket (€k)
doBank3 104.8 77.5 114 79% 21%
Cerved Credit Management 46.0 12.1 11 42% 58%
MBCredit Solutions 39.5 5.0 2 1% 99%
Fire 20.8 2.4 5 14% 86%
Guber 18.9 8.9 65 16% 84%
Advancing Trade 16.9 4.3 2 100%
Credito Fondiario 16.9 1.2 21 68% 32%
FBS 12.7 8.0 36 31% 69%
Cribis 12.0 2.1 18 62% 38%
CAF 11.5 7.6 41 31% 69%
Hoist Italia 10.6 7.8 8 1% 99%
Sistemia 10.0 5.3 18 69% 31%
Aquileia Capital 9.7 1.2 535 58% 42%
Europa Factor 9.3 1.8 1 13% 87%
Officine CST 6.0 1.5 14 58% 42%
Bcc Gestione Crediti 6.0 2.6 131 72% 28%
Prelios Credit Servicing 5.2 4.0 317 60% 40%
Axactor 4.5 0.8 7 100%
AZ Holding 4.4 1.3 7 100%
Aurora RE 4.2 0.2 24,011 100%

Fides 4.0 0.6 3 14% 86%
CSS 3.8 1.2 6 100%
SiCollection 2.8 0.6 6 100%
Frontis NPL 2.3 2.6 934 92% 8%
Phoenix Asset Management 2.1 9.0 344 36% 64%
Gextra - Lindorff group 1.8 0.4 9 14%
4% 96%
Blue Factor 1.1 1.6 8 100%
Primus Capital 0.6 0.4 42 27% 73%
Bayview Italia n.a. 3.7 57 42% 58%
Kruk Italia n.a. 2.7 8 100%
Parr Credit n.a. 5
0.3 3 100%
Serfin n.a. 5
0.6 1 100%
Link Financial n.a. 5
2.1 6 10% 90%
Certa Credita n.a.5 - 6 n.a. n.a.
Source: PwC analysis on data provided by Servicers as of 30/06/2017; data have been directly provided by Servicers and have not been verified by PwC. Servicers present
2 Servicers providing mainly Master Servicing activities have been excluded: Centotrenta Servicing, Zenith Service, Finanziaria Internazionale

Owned 4 (%) Banks4 (%) Investors4 (%) Others4 (%)
38% 62%
57% 43%
70% 9% 10% 11%
8% 44% 48%
10% 41% 48% 1%
18% 28% 34% 20%
10% 58% 32% 1%
12% 29% 59%
77% 23%
37% 63%
100%
71% 22% 7%
37% 37% 26%
66% 13% 21%
62% 16% 22%
45% 55%
15% 85%
100%
11% 44% 18% 28%
80% 20%
70% 30%
16% 84%
25% 1% 53% 21%
6% 94%
100%
79% 21%
25% 75%
2% 9% 54% 35%
100%
100%
2% 84% 14%
100%
n.a. n.a. n.a. 20% n.a.
85% 12% 3%
12%
3 doBank group figures include Italfondiario: 79% refers to “first lien” secured Bad loans
4 Percentages are based on total NPL portfolio: breakdown for Master and Special servicing activities have not been provided
5 H1 2017 data have not been provided by Servicers, at 31/12/2016 revenues were equal to: Parr Credit 20€m; Serfin 19€m; Link Financial 4.9 €m; Certa Credita 1€m; Not
available data for Kruk and Bayview
PwC | 41
Table 8: Geographical NPL breakdown (data at 30/06/2017) – Ranking by Revenues2
In term of AuM
Revenues Total Bad Loans

Company North4 Centre5 South - Islands6
H1 2017 (€m) AuM (€bn)1
doBank3 104.8 77.5 45% 23% 32%
Cerved Credit Management 46.0 12.1 39% 22% 39%
MBCredit Solutions 39.5 5.0 40% 23% 37%
Fire 20.8 2.4 30% 19% 51%
Guber 18.9 8.9 43% 40% 17%
Advancing Trade 16.9 4.3 35% 16% 49%
Credito Fondiario 16.9 1.2 50% 34% 15%
FBS 12.7 8.0 27% 37% 37%
Cribis 12.0 2.1 46% 23% 31%
CAF 11.5 7.6 44% 32% 24%
Hoist Italia 10.6 7.8 47% 19% 33%
Sistemia 10.0 5.3 42% 33% 25%
Aquileia Capital 9.7 1.2 93% 4% 3%
Europa Factor 9.3 1.8 28% 26% 46%
Officine CST 6.0 1.5 40% 27% 33%
Bcc Gestione Crediti 6.0 2.6 47% 17% 35%
Prelios Credit Servicing 5.2 4.0 24% 21% 55%
Axactor 4.5 0.8 n.a.

28% n.a. 46% n.a.
AZ Holding 4.4 1.3 35% 38% 27%
Aurora RE 4.2 0.2 49% 45% 6%
Fides 4.0 0.6 16% 21% 63%
CSS 3.8 1.2 50% 19% 31%
SiCollection 2.8 0.6 41% 16% 43%
Frontis NPL 2.3 2.6 63% 25% 12%
Phoenix Asset Management 2.1 9.0 31% 50% 19%
Gextra - Lindorff group 1.8 0.4 41% 25% 34%
Blue Factor 1.1 1.6 33% 31% 36%
Primus Capital 0.6 0.4 39% 31% 30%
Bayview Italia n.a.7 3.7 58% 20% 22%
Kruk Italia n.a.7 2.7 17% 28% 55%
Parr Credit n.a.7 0.3 27% 35% 38%
Serfin n.a.7 0.6 30% 50% 20%
Link Financial n.a.7 2.1 21% 36% 43%
Certa Credita n.a.7 - 28% 17% 55%
28% 55%
Source: PwC analysis on data provided by Servicers as of 30/06/2017; data have been directly provided by Servicers and have not been verified by PwC; Servicers present
2 Servicers providing mainly Master Servicing activities have been excluded: Centotrenta Servicing, Zenith Service, Finanziaria Internazionale
3 doBank group figures include Italfondiario

Table 9: Breakdown of servicer’ Total Bad Loans AuM1 (data at 30/06/2017) – Ranking by Revenues2
Type of loan resolution - Nr of Loans

Secured Unsecured
Judicial Extrajudicial Loan Sale Judicial Extrajudicial Loan Sale
12% 87% 2% 98%
18% 71% 11% 13% 87%
100% 31% 19% 19% 81%
50% 50% 5% 95%

48% 52% 4% 96%
n.a. n.a. n.a. 12% 87%
33% 57% 10% 38% 50% 12%
24% 65% 11% 11% 79% 10%

43% 46% 11% 17% 83%
42% 28% 30% 13% 49% 38%
76% 24% 28% 72%

70% 30% 50% 50%
7% 93% 26% 74%

n.a. n.a. n.a. 32% 68%
78% 21% 1% 30% 69% 1%
10% 90% 5% 95%

67% 25% 8% 35% 32% 33%
n.a. n.a. n.a. n.a. n.a. n.a.
n.a. n.a. n.a. 25% 75%
n.a. n.a. n.a. n.a.

30% n.a. n.a.
34% 66% 100%
n.a. n.a. n.a. 100%
n.a. n.a. n.a. 94% 6%
48% 12% 40% 100%
100% 100%
n.a. n.a. n.a. 40% 60%
69% 29% 2% 2% 97% 1%
n.a. n.a. n.a. 6% 94%
100% 100%
n.a. n.a. n.a. 10% 90%
91% 9% 3% 97%
n.a. n.a. n.a. 100%
55% 28%
4 Includes: Piemonte, Valle d’Aosta, Lombardia, Veneto, Trentino Alto Adige, Friuli Venezia Giulia, Liguria, Emilia Romagna
5 Includes: Toscana, Umbria, Marche, Lazio
6 Includes: Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sicilia, Sardegna
7 H1 2017 data have not been provided by Servicers, at 31/12/2016 revenues were equal to: Parr Credit 20€m; Serfin 19€m; Link Financial 4.9 €m; Certa Credita 1€m; Not
available data for Kruk and Bayview
PwC | 43
Recent
market
activity and Key Message: Alongside such structural reforms of
the banking sector, the Government has adopted
outlook measures to encourage the creation of a market

for non-performing loans, which helps to reduce
the burden of those assets and restore an adequate
flow of lending to the real economy. Even after
facing a long recession, the Italian banking sector
has proven to be sound and resilient. Overall, after
years of adjustments, the Italian banking industry
is returning to positive, effective and promising
levels of performance. Transaction volumes in 2018
are expected to peak €70 bn.

New regulations introduced in Italy in the last years, for The figure includes also the NPE (€16.8 bn) of Banca
instance limitations on borrowers being able to block Popolare di Vicenza and Veneto Banca which will be hand
recoveries and laws allowing real-estate leases to be over by the LCA to the Bad Bank SGA according to the
packaged into securitizations, have enticed more buyers in Government Decree dated 25 June 2017 (the NPL were still
the financial market. accounted for in the exposures of the Italian banking system
as at 30 June 2017 and excluded from July 2017 once the
Moreover, new accounting rules known as the IFRS 9 are LCA did not maintain the banking license of the two banks).
due to come into force at the start of 2018, under which
banks will have to take into account expected losses on Among the other significant transactions of the year, we
their loan books as well as realized losses. While the recent have to mention the bailout of the three regional banks
downward trend is encouraging, banks need to continue to Carismi, Carim and CariCesena acquired by Crédit Agricole
be realistic about the prices they’re willing to offload their Cariparma. The transaction resulted in the disposal of the
bad debts at. bad loans (€2.9 bn) and UTP (€0.3 bn) of the three banks to
Quaestio Capital SGR and Algebris respectively.
In June 2017, the Government committed as much as 17 bn
euros to wind down Banca Popolare di Vicenza and Veneto
Banca, and a month later got EU approval to give 5.4 bn December 2017 featured booming M&A movements. Carige
euros of aid to recapitalize Banca Monte dei Paschi di Siena, established an industrial servicing partnership with Credito
thus addressing what were considered the main systemic Fondiario through the sale of €1.2 bln of NPL (bad loans
risks for the banking industry. only) and the servicing platform (contract + people).
Lindorff-Intrum acquired CAF (the platform and their NPL
Following these measures, in June 2017 the two banks in portfolio totalling €400m of GBV).
Veneto region were acquired by Intesa Sanpaolo and their
NPE exposures (€16.8 bn) were disposed to the Italian According to the movements seen in the market we foresee
public Bad Bank SGA (as at December 2017 the NPE are yet in 2018 NPL transactions achieving volume of atleast circa
within the LCA (“Liquidazione Coatta Amministrativa”), €70 bn. The figure includes the securitisation of MPS above
which is the judicial procedure legally entitled to hand over described (€26.1 bn) which should be closed by 30 June
the NPE to SGA). MPS will sell their NPE (€26.1 bn) in 2018 2018 and other disposals announced by several players in
through a securitization where the senior and mezzanine the market (e.g. BPM for €4 bn, BPER for c. €5 bn).
notes will be underwritten by Atlante Fund resulting in the
full derecognition of the NPE for the bank.
Year 2017 features circa €64 bn of NPL closed transactions.

The figure includes €17.7 bn of loans (“Project Fino”) sold
by Unicredit to Fortress and Pimco through a securitization
(the NPL were still on the book of the bank as at 30 June
2017 and fully derecognised as at 30 September 2017 once
Unicredit committed to reduce its quota of the notes under
20% within one year).
PwC | 45
Chart 29: Closed NPL transactions in 2017YTD
Performing/Non
Date Seller Volume (€m) Macro asset class Buyer
Performing
2017 Q4 Banca popolare di Bari 320 Bad loans Mixed Secured/Unsecured Davidson Kempner
2017 Q4 Creval 24 UTP Secured Hoist Finance
2017 Q4 Carige 1.200 Bad loans Mixed Secured/Unsecured Credito Fondiario
2017 Q4 Cassa Centrale Banca 570 Bad loans Mixed Secured/Unsecured Seer Capital Management
2017 Q4 Cassa Centrale Banca 315 Bad loans Mixed Secured/Unsecured Locam
2017 Q4 CAF 400 Bad loans Mixed Secured/Unsecured Lindorff-Intrum
Veneto Banca, Banca

2017 Q4 16.800 Bad loans & UTP Mixed Secured/Unsecured SGA
Popolare di Vicenza
2017 Q4 BNL 1.000 Bad loans Unsecured Lindorff-Intrum

2017 Q4 BPM 2.000 Bad loans Unsecured Confidential
2017 Q4 Unicredit 14.300 Bad loans Mixed Secured/Unsecured Fortress
2017 Q4 Unicredit 3.400 Bad loans Mixed Secured/Unsecured Pimco
2017 Q4 Unicredit 265 Bad loans Secured Cerberus
2017 Q4 Unicredit 450 Bad loans Unsecured MBCredit Solutions
2017 Q4 Banca IFIS 152 Bad loans Unsecured Confidential
2017 Q4 Confidential 44 Bad loans Unsecured Banca IFIS
2017 Q4 Intesa San Paolo 600 Bad loans Unsecured MB Credit Solutions
2017 Q3 CRC-Carim-Carismi 286 UTP Mixed Secured/Unsecured Algebris
2017 Q3 CRC-Carim-Carismi 2.885 Bad loans Mixed Secured/Unsecured Quaestio Capital SGR
Banca Marche, Etruria,

2017 Q3 759 Bad loans Secured Cerberus
Chieti
2017 Q3 Hypo Alpe Adria Bank 750 Bad loans, UTP & leasing Other Bain Capital Credit
Credit Agricole e Banco
2017 Q3 175 Bad loans Mixed Secured/Unsecured B2Holding ASA
Desio
Palamon Capital
2017 Q3 170 Bad loans Consumer Best Capital Italy
Partners
2017 Q3 Rev 300 Bad loans Unsecured Seer Capital

2017 Q3 Commerzbank 234 Bad loans & UTP Secured Fortress Investment Group
Banca Mediocredito
2017 Q3 400 Bad loans Mixed Secured/Unsecured Bain Capital
FVG
2017 Q2 Carige 938 Bad loans Mixed Secured/Unsecured Davidson Kempner
Banca Marche, Etruria,
2017 Q3 2.200 UTP Mixed Secured/Unsecured Quaestio Capital SGR
Chieti
2017 Q2/
Various 132 Bad Loans Mixed Secured/Unsecured IDeA NPL
Q3
2017 Q2 Confidential 1.000 Bad loans Unsecured LCM
2017 Q2 Creval 1.400 Bad loans Mixed Secured/Unsecured Waterfall Asset Management
International distressed investor

2017 Q2 Banca IFIS 250 Bad loans Consumer
and LCM Partners
2017 Q2 Banca IFIS 750 Bad loans Consumer Kruk Italia

2017 Q2 Deutsche Bank 130 Bad loans Unsecured Kruk Italia
2017 Q2 Unicredit 50 Bad loans Mixed Secured/Unsecured Kruk Italia
2017 Q2 Cariferrara 343 Bad loans Mixed Secured/Unsecured Quaestio Capital SGR

Performing/Non
Date Seller Volume (€m) Macro asset class Buyer
Performing
2017 Q2 Findomestic Banca 321 Bad loans Unsecured Banca IFIS
Consel (Banca Sella
2017 Q2 17 Bad loans Unsecured Banca IFIS
Group)
2017 Q2 Deutsche Bank 132 Bad loans Unsecured Kruk Italia
2017 Q2 Unicredit 310 Bad loans Unsecured MB Credit Solutions
2017 Q2 Banco BPM 750 Bad loans Secured Algebris
Banca Mediocredito
2017 Q2 400 Bad loans Secured Bain Capital
FVG
2017 Q2 Banca Sella 126 Bad loans Mixed Secured/Unsecured B2 Holding

2017 Q2 Barclays 190 Bad loans Unsecured Banca IFIS
2017 Q2 Unicredit Leasing 500 Bad loans Unsecured MB Credit Solutions
2017 Q2 Intesa SanPaolo 2.500 Bad loans Mixed Secured/Unsecured CRC
2017 Q2 Confidential 22 Bad loans Unsecured Axactor
2017 Q2 Intesa SanPaolo Provis 280 Bad loans Secured Credito Fondiario
2017 Q1 Deutsche Bank 413 Bad loans Mixed Secured/Unsecured Banca IFIS
2017 Q1 CreVal 50 Bad loans Secured Confidential
2017 Q1 Santander 160 Bad loans Unsecured Banca IFIS
2017 Q1 HETA 657 Bad loans Mixed Secured/Unsecured Bain Capital
2017 Q1 Barclays 177 Bad loans Secured AnaCap
2017 Q1 CreVal 105 UTP Secured Cerberus
2017 Q1 Agos Ducato 350 Bad loans Unsecured Hoist Finance
2017 Q1 BNL 1.000 Bad loans Unsecured Banca IFIS
2017 Q1 Banco Popolare 641 Bad loans Unsecured Hoist Finance
Chart 30: NPL transactions trend in the Italian market (€bn)
64
0.8
0.0
49.6
30
19 9.3
1.2
1.2
9 5.4
7.5
4 1.5 3.0
5 0.6
0.8
2.6 3.7 7.4 9.7
0.2 1.8 0.2
2.1 4.4 6.5
2.6 3.8 4.0 1.2
2012 2013 2014 2015 2016 2017 YTD
Consumer Unsecured Secured Mixed Secured/Usecured Mainly Unsecured Other Total GBV
Source: PwC market analysis

PwC | 47
2017F 2018F
0.3
61.8 18.7 49.0
62.2 20.4 53.9
YE 2013
YE 2013
YE 2013
UCG
61.0 20.8 53.2
UCG
UCG
73.3 13.6 51.0
74.4 11.8 46.2
62.5
YE 2014
13.0
YE 2014
34.6
YE 2014
62.8 14.2 38.2
ISP
61.8 15.0
ISP
39.2
ISP
60.7 14.9 37.9
60.7 13.9
35.4
YE 2015
YE 2015
YE 2015
21.6
Net Bad Loans volume (€bn)

58.8 8.9
Bad Loans Coverage ratio (%)

21.6
Gross Bad Loans volume (€bn)
65.3 8.4 24.3

63.4 9.7
MPS
MPS
26.6
MPS
YE 2016
10.4
YE 2016
64.8 29.4
YE 2016
77.5 7.0
31.2
41.6 3.4
4.0 5.9
38.8
H1 2017
H1 2017
6.6
UBI
38.6 4.3
H1 2017
UBI

7.0
UBI
45.1 4.0
4.0 7.3
46.3
7.5
59.1 2.4
62.0 2.7 5.8
BNL
BNL
63.3 3.0 7.1
Source: Financial Statements as of H1 2017, YE 2016, YE 2015, YE2014, YE 2013

64.6 3.2 8.1
BNL
64.6 8.9
6.9
55.0 2.5
56.5 2.8 5.5
58.2 3.0 6.5
BPER
BPER
57.2 3.0 7.1
BPER
58.8 2.9 7.0

7.1
55.0 1.0
56.5 1.1 2.2
57.6 1.2 2.6
1.2 2.7
Cariparma
57.9
Cariparma
58.7 1.2 2.9
Cariparma
3.0
58.2 0.3
58.6 0.3 0.7
60.8 0.4 0.8
Credem
59.6 0.3 0.9
Credem
0.3
Credem
60.6 0.9
0.9
41.9 6.7
45.9 7.3 11.5
42.2 7.9 13.6
45.7 7.8 13.8
Banco BPM
Banco BPM
59.9 6.9 14.4
Banco BPM
17.3
56.3 1.2
58.5 1.3 2.7
60.4 1.4 3.1
Carige
Carige
65.3 1.3 3.5
Carige
66.7 1.3 3.7

3.9
85.5 3.7 8.9
87.2 4.3 10.4
UCG
UCG
YE 2013
YE 2013
YE 2013
UCG
4.4 10.3
82.9
77.1 3.0 10.3
69.2 2.6 9.3
9.3
YE 2014
YE 2014
3.8
YE 2014
57.6
10.3
ISP
4.2
ISP
63.0
ISP
63.4 4.3 10.3
4.1 9.6
Net Bad Loans ratio (%)

58.4
Gross NPE volume (€bn)

3.5 8.4
Gross Bad Loans ratio (%)
54.6
YE 2015
YE 2015
YE 2015
6.8 14.7
36.1
45.3 7.1 17.0
MPS
MPS
8.7 19.8
MPS
46.9
22.1
YE 2016
YE 2016
9.7
YE 2016
45.8
7.4 24.9
45.5
3.9 6.4
12.7
13.1 4.7 7.3
H1 2017
H1 2017
H1 2017
5.1 7.9
UBI
UBI
13.5
UBI
4.9 8.4
12.5
4.3 7.5
14.1
3.7 8.4
11.0
4.4 10.4
12.3
4.9 12.0
BNL

BNL
12.9
BNL
5.1 13.0
13.1
5.3 10.9
10.3
11.0 6.4 13.3
11.4 6.8 14.5
BPER
BPER
BPER
6.6 13.9
11.2
6.2 13.6
11.0
5.5
5.5
3.9 2.7 5.6
5.0 3.1 6.7
3.2 7.1
5.2
3.2 7.2
5.0
Cariparma
Cariparma
3.1 7.1
Cariparma
4.9
1.6 3.6
1.3 3.6
1.5
1.3 3.8
1.4 1.5
Credem
3.5
Credem
1.4 1.5
Credem
1.4 3.6
1.4
5.6 9.0
11.5
6.6 11.1
13.6
7.1 11.3
26.8
7.1 11.9
26.0
Banco BPM
Banco BPM
6.3 14.0
Banco BPM
27.9
4.6 9.6
5.5
5.4 11.7
6.5
6.5 14.4
6.8
Carige
Carige
17.2
Carige
7.1
7.3
7.4 18.4
7.2
PwC | 49
15.6 51.9 41.1
16.9 51.1 42.6
UCG
UCG
YE 2013
YE 2013
YE 2013
16.0 51.1 40.5
UCG
15.6 62.8 28.7
13.9 64.0 24.9
46.0 31.1
YE 2014
YE 2014
15.4
YE 2014
33.6
Gross NPE ratio (%)

ISP
46.7
ISP
17.0
47.5 33.3
ISP
Net NPE volume (€bn)
16.6
30.0
NPE Coverage ratio (%)

14.8 48.7
12.9 49.1 27.8
YE 2015
YE 2015
YE 2015
21.6
24.5 41.8 21.0
31.7 48.9 23.1
MPS
MPS
34.8 48.5 24.2
MPS
20.3
YE 2016
55.6
YE 2016
YE 2016
34.5
36.3 65.7 15.6
13.7 26.5 9.3

14.6 27.3 9.5
H1 2017
H1 2017
H1 2017
9.7
UBI
27.8
UBI
15.2
UBI

14.5 35.7 8.1
40.2 8.5
14.1
43.7 6.2
15.9
18.0 48.1 6.4
51.5 6.3
BNL

19.2
BNL
BNL
19.0 55.3 5.8
37.3 6.4
20.3
40.7 6.5
22.6
44.2 6.4
BPER
23.3
BPER
6.2
BPER
22.1 44.5
46.9 5.9
22.1
5.5
5.5
39.6 2.3
10.2 3.0
38.6
12.6 3.1
40.5
13.3 2.9
42.2
12.4
Cariparma
Cariparma
42.2 2.7
Cariparma
11.7
38.7 0.8
6.3 40.7 0.8
6.0 0.8
44.6
6.0
Credem
Credem
42.5 0.8
5.8
Credem
43.4 0.8
5.8
41.9 6.7
9.0 7.3
45.9
11.1 33.6 17.8
21.9 37.8 16.2
Banco BPM
21.6
Banco BPM
49.0 14.2
Banco BPM
22.6
37.1 3.4
19.8 3.9
40.0
24.6 42.5 3.9
Carige
Carige
27.9 47.1 3.9
Carige
33.8 48.9 3.7
33.9
40.1 114.3 8.2
41.3 34.6 9.1
UCG
YE 2013
UCG
UCG
YE 2013
YE 2013
42.0 35.0 8.5
34.6 115.7 6.4
21.4 27.1 5.5
Net NPE ratio (%)
9.0
YE 2014
YE 2014
29.1 68.9
YE 2014
ISP
31.9 41.8 9.9
31.3 29.8 9.5
ISP
ISP
30.5 35.1 8.2
Net Bad Loans/Equity (%)

26.2 25.5 7.1
YE 2015
YE 2015
YE 2015
144.5 129.4 16.0
141.6 366.5 19.3
MPS
21.7
MPS
101.4 89.3
MPS
19.0
YE 2016
161.3
YE 2016
223.1
YE 2016
230.6 512.9 16.4
33.2 53.9 10.5

41.1 51.1 11.1
H1 2017
H1 2017
H1 2017
11.5
UBI
43.0
UBI
49.2
44.4 103.2 9.9
40.7 103.2
37.9 9.0
Yearly Loan Loss Provision/Net Interest Margin (%)

42.4 54.3 9.7
48.6 59.5 10.3
52.4 10.4

49.7
BNL
BNL
BNL
56.2 41.7 9.5
9.5
61.0 60.6 13.9

69.9 62.9 14.9
59.2 57.5 14.5
BPER
BPER
BPER
59.9 52.9 13.6
58.8 56.7 12.5
5.5 5.5
21.0 52.9 6.4
23.9 41.5 8.2
23.5 33.1 8.4
24.2 70.0 7.6
Cariparma
Cariparma
Cariparma
24.7 22.2 6.9
14.4 22.9 4.0

14.1 21.0 3.7
14.4 23.5 3.4
3.4
Credem
15.8
Credem
Credem
14.0
13.4 11.3 3.4
56.4 89.9 5.6

58.3 164.9 6.6
62.6 51.3 15.8
65.5 135.5 14.6
Banco BPM
Banco BPM
Banco BPM
55.9 49.6 13.0
73.2 167.2 13.6

73.1 163.6 16.5
57.0 85.5 18.3
Carige
Carige
Carige
61.3 157.9 21.2

66.4 155.6 20.9
PwC | 51
Contacts List / Contributors
Pier Paolo Masenza Fedele Pascuzzi

Financial Services Deals Leader Business Recovery Services Leader
pierpaolo.masenza@pwc.com fedele.pascuzzi@pwc.com
Vito Ruscigno Alessandro Biondi

Co-Head of NPL Co-Head of NPL
vito.ruscigno@pwc.com alessandro.biondi@pwc.com
Gianluigi Benetti Antonio Martino

Financial Services | Deals Strategy Leader Real Estate Deals Leader
gianluigi.benetti@pwc.com antonio.martino@pwc.com
Gabriele Guggiola Matteo D’Alessio

Regulatory Deals Leader Financial Services Deals Partner
gabriele.guggiola@pwc.com matteo.dalessio@pwc.com

Portfolio Advisory Group
Austria Greece Serbia Christina Zarifi
Jens Roennberg Thanassis Panopoulos Marko Fabris +44 20 7213 2045
+49 699 585 2226 +30 210 687 4628 +38 111 330 2137 christina.zarifi@pwc.com
jens.roennberg@at.pwc.com thanassis.panopoulos@gr.pwc.com marko.fabris@rs.pwc.com
Natasha Firman
Bernhard Engel Hungary Spain +44 20 7212 3453
+43 150 188 1160 Csaba Polacsek Jaime Bergaz natasha.firman@pwc.com
bernhard.engel@at.pwc.com +36 14 619 751 +34 915 684 589
csaba.polacsek@hu.pwc.com jaime.bergaz@es.pwc.com North America
Bulgaria Mitchell Roschelle
Bojidar Neytchev Ireland Guillermo Barquin +1 646 471 8070
+35 929 355 288 Aidan Walsh +34 915 685 773 mitchell.m.roschelle@pwc.com
bojidar.neytchev@bg.pwc.com +35 317 926 255 guillermo.barquin.orbea@es.pwc.
aidan.walsh@ie.pwc.com com Asia Pacific
CEE Ted Osborn
Petr Smutny Italy Pablo Martinez-Pina +85 222 892 299
+42 025 115 1215 Pierpaolo Masenza +34 915 684 370 t.osborn@hk.pwc.com
petr.smutny@cz.pwc.com +39 065 7025 2483 pablo.martinez-pina@es.pwc.com
pierpaolo.masenza@it.pwc.com Chiara Lombardi
Edward Macnamara Richard Garey +65 6236 3703
+42 731 635 089 Fedele Pascuzzi +34 915 684 156 chiara.m.lombardi@sg.pwc.com
edward.x.macnamara@ro.pwc. +39 028 064 6323 richard.garey@es.pwc.com
com fedele.pascuzzi@it.pwc.com James Dilley
Sweden +85 222 892 497
Croatia Vito Ruscigno Per Storbacka james.ha.dilley@hk.pwc.com
Sinisa Dusic +39 02 8064 6333 +46 855 533 132
+38 516 328 844 vito.ruscigno@it.pwc.com per.storbacka@se.pwc.com Huong Dao Thi Thien
sinisa.dusic@hr.pwc.com dao.thi.thien.huong@vn.pwc.com
Alessandro Biondi Turkey
Cyprus +39 02 7785213 Serkan Tamur Lee Chui Sum
Stelios Constantinou alessandro.biondi@it.pwc.com +90 212 376 5312 +60(3) 2173 1188
+35 725 555 190 serkan.tarmur@tr.pwc.com chui.sum.lee@my.pwc.com
stelios.constantinou@cy.pwc.com The Netherlands
Peter Wolterman Kadir Köse Michael Fung
Czech Republic and Slovakia +31 887 925 080 +90 212 355 5323 michael.fung@au.pwc.com
Petr Smutny peter.wolterman@nl.pwc.com kadir.kose@tr.pwc.com
+42 025 115 1215 Masaya Koto
petr.smutny@cz.pwc.com Wilbert van den Heuvel Ukraine +81 906 512 4999
+31 887 923 816 Oleg Tymkiv masaya.kato@pwc.com
Denmark wilbert.van.den.heuvel@nl.pwc. +38 044 4906 773
Bent Jørgensen com oleg.tymkiv@ua.pwc.com Latin America
+45 39 459 259 Nico Malagamba
bent.jorgensen@dk.pwc.com Jessica Lombardo United Kingdom +55 119 9976 4250
+31 887 925 060 Richard Thompson nicolas.malagamba@br.pwc.com
France jessica.lombardo@nl.pwc.com +44 20 7213 1185
Hervé Demoy richard.c.thompson@pwc.com Middle East
+33 156 577 099 Norway Matthew Wilde
herve.demoy@fr.pwc.com Lars Johansson Robert Boulding +971 4 304 3984
+47 48 161 792 +44 20 7804 5236 matthew.wilde@ae.pwc.com
Germany lars.x.johansson@no.pwc.com robert.boulding@pwc.com
Christopher Sur
+49 699 585 2651 Poland Ben May
christopher.sur@de.pwc.com Pawel Dzurak +44 20 7212 3664
+48 227 464 697 ben.may@pwc.com
Thomas Veith pawel.dzurak@pl.pwc.com
+49 699 585 5905 Panos Mizios
thomas.veith@de.pwc.com Portugal +44 20 7804 7963
Antonio Rodrigues panagiotis.mizios@pwc.com
Jörg Jünger +35 121 359 9181
+49 699 585 2707 antonio.rodrigues@pt.pwc.com
joerg.juenger@de.pwc.com
PwC | 53
PwC | 55
www.pwc.com/it/npl
© 2017 PricewaterhouseCoopers Advisory SpA. All rights reserved. PwC refers to PricewaterhouseCoopers Advisory SpA and may sometimes refer to the PwC network. Each
member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a
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The Italian NPL market

Ready for the breakthrough

Pier Paolo Masenza Fedele Pascuzzi Vito Ruscigno Alessandro Biondi

Italian Real Estate Market 8

Legal and regulatory framework update 12

Italian NPL Market 15

Italian Banks overview 22

Focus on UTP Italian Market 28

The Servicing Market 35

Recent market activity and outlook 44

4 | The Italian NPL market - Ready for the breakthrough

Overall, the EU GDP growth is set

Italian GDP is set to be equal to 0.9% -1.7 -1.6 -1.5

real interest rates and the extension of

EU inflation raised significantly Chart 2: Italian main economic drivers

11.9 2015 2016F 2017F

6 | The Italian NPL market - Ready for the breakthrough

After a small increase from 2016

8 | The Italian NPL market - Ready for the breakthrough

Table 2: Italian NTN1 comparison by sector

Source: PwC publication “Real Estate Market Overview – Italy 2017”

Delta (%) Delta (%) Delta (%)

Source: PwC publication “Real Estate Market Overview – Italy 2017”

Table 4: Non residential NTN by geographic area

NTN H1 2017 Delta (%)

NTN H1 2017 Delta (%)

NTN H1 2017 Delta (%)

Source: PwC publication “Real Estate Market Overview – Italy 2017”

10 | The Italian NPL market - Ready for the breakthrough

The Addendum to ECB Guidance: on 8th of

12 | The Italian NPL market - Ready for the breakthrough

Early Warning Focus Automatization and

Externalization and centralization of “non-core” activity monitoring and

Activation of “one-off” actions aimed at reduction of the stock in particular cases

Actions to be considered by LSI

14 | The Italian NPL market - Ready for the breakthrough

Chart 6: Gross NPE and Bad Loans trend

Chart 7: Net Bad Loans Trend

Source: PwC analysis data of ABI Monthly Outlook

16 | The Italian NPL market - Ready for the breakthrough

Source: PwC analysis on data of “Bollettino Statistico” of Bank of Italy

Corporate & SME Small family business Consumer Other**

Source: PwC analysis on data of “Bollettino Statistico” of Bank of Italy

Source: PwC analysis on data of “Bollettino Statistico” of Bank of Italy

18 | The Italian NPL market - Ready for the breakthrough

Source: PwC analysis on data of “Bollettino Statistico” of Bank of Italy

Chart 13b: Breakdown of UTP by region* (H1 2017)

1.6% 6.5% 3.6%

Source: PwC analysis on data of “Bollettino Statistico” of Bank of Italy

20 | The Italian NPL market - Ready for the breakthrough

all economic sectors, with a favourable tendency in the -8.9%

The reduction in non-bankruptcy procedures, that started

22 | The Italian NPL market - Ready for the breakthrough

NPL Coverage Ratio (%)

ratio with 24.9%, while the average

Gross Bad Loans Coverage Ratio (%)

Bubble size: Gross Bad Loans

24 | The Italian NPL market - Ready for the breakthrough

Unlikely to Pay Coverage Ratio (%)

Bubble size: Gross Unlikely to Pay

Past Due Coverage Ratio (%)

Bubble size: Gross Past Due

coverage ratio stands at 62.8%. The 75%