Distressed Retail Loans

This is the Banca IFIS Group's segment dedicated to non-recourse factoring and managing distressed retail loans. It serves households under the new CrediFamiglia brand.
The business is closely associated with recovering non-performing exposures.

In the second half of 2015, the Bank reviewed the cash flow simulation model, acknowledging that the model for non-judicial debt collection operations has significantly changed over the years. The new scenario made the previous simulation model outdated.

The review of the cash flow simulation model was also aimed at ensuring that some types of collection instruments with similar characteristics (bills of exchange and settlement plans agreed with the debtor) are treated consistently.

The new estimation model developed by the Bank simulates cash flows by projecting the “breakdown” of the nominal amount of the receivable “over time” based on the historical recovery profile for similar clusters. In addition, for the positions with funding characteristics, the Bank uses a “deterministic” model based on the measurement of the future instalments of the settlement plan, net of the historical default rate.

The review of the estimation model caused a change in the cash flows of the underlying receivables, which, discounted at the original IRR of the positions, resulted in a net 8,5 million Euro decrease in their amortised cost. This change largely derived from the alignment of the effective date for similar collection instruments, for the purposes of estimating cash flows, in measuring the future instalments of the plans. The impact was recognised in profit or loss in accordance with IAS 39. AG 8, under “Other components of net interest income” in the table below.

DRL RECEIVABLES PERFORMANCE (thousands of Euro)
Receivables portfolio at 31.12.2014 135.429
Purchases 217.727
Sales of receivables (16.207)
Profit from sales 14.948
Interest income from amortised cost 25.061
Other components of net interest income from change in cash flow 21.056
Losses/Reversals of impairment losses from change in cash flow (3.613)
Collections (40.049)
Receivables portfolio at 31.12.2015 354.352

INCOME STATEMENT DATA
(in thousands of Euro)
31.12.2015 31.12.2014 CHANGE
Interest income from amortised cost 25.061 26.675 (1.614) (6,1)%
Other interest income from change in cash flow (1) 21.056 7.020 14.036 199,9%
Funding costs (2) (3.612) (4.027) 415 (10,3)%
Net interest income (1) 42.505 29.668 12.837 43,3%
Net commission income (1.153) - (1.153) n.a.
Profit from sale of receivables 14.948 3.581 11.367 317,4%
Net banking income (1) 56.300 33.249 23.051 69,3%
Net impairment losses/recoveries on loans and receivables (1) (3.613) (1.770) (1.843) 104,1%
Net profit from financial activities 52.687 31.479 21.208 67,4%

(1) The data for 2014 were restated as described in the Notes, Part A, Section 2.
(2) Allocated funding costs by the internal transfer rate system

QUARTERLY INCOME STATEMENT DATA
(in thousands of Euro)
4th Q 2015 4th Q 2014 CHANGE
Interest income from amortised cost 6.360 6.518 (158) (2,4)%
Other interest income from change in cash flow (1) 3.069 3.861 (792) (20,5)%
Funding costs (1.214) (1.054) (160) 15,2%
Net interest income (1) 8.215 9.325 (1.110) (11,9)%
Net commission income (761) - (761) n.a.
Profit from sale of receivables 14.948 3.581 11.367 317,4%
Net banking income (1) 22.402 12.906 9.496 73,6%
Net impairment losses/recoveries on loans and receivables (1) (584) (1.704) 1.120 (65,7)%
Net profit from financial activities 21.818 11.202 10.616 94,8%

(1) The data for 2014 were restated as described in the Notes, Part A, Section 2.

In the fourth quarter of 2015, the Bank sold three portfolios of receivables, making a profit of 15,0 million Euro.

STATEMENT OF FINANCIAL POSITION DATA
(in thousands of Euro)
31.12.2015 31.12.2014 CHANGE
      ABSOLUTE %
Bad loans 159.336 70.089 89.247 127,3%
Unlikely to pay 194.995 65.337 129.658 198,4%
Total net impaired loans  354.331 135.426 218.905 161,6%
Net performing loans 21 3 18 600,0%
Total loans to customers (cash)  354.352 135.429 218.923 161,7%

At 31 December 2015, the segment's receivables included 19,9 million Euro (corresponding to 476,7 million Euro and 137 thousand positions) in loans involved in one of the sales completed at the end of December, when the Bank accepted the buyer's binding offer. The sale was finalised on 15 January 2016.

The mentioned binding offer contained all the elements required to determine whether all risks and rewards relating to the receivables sold were substantially transferred (derecognition). However, since the transfer had not been formally completed at the reporting date, the Bank presented the relevant impact without derecognising the assets: instead, it recognised a receivable due from the buyer equal to the consideration, and a payable due to the buyer equal to the amount of the receivables sold. The positive difference was recognised in profit or loss under gains on the sale of receivables.

The following data, in terms of par value and number of positions, are presented accounting for such sale.

KPIs 31.12.2015 31.12.2014 CHANGE
      ABSOLUTE %
Nominal amount of receivables managed 8.161.005 5.630.151 2.530.854 45,0%
Total RWA per sector 354.352 135.426 218.926 161,7%

During the year, the counterparties settled their debt mainly according to the following methods:

  • in cash (postal orders, bank transfers, etc.);
  • by signing bills of exchange;
  • settlement plans agreed with the debtors (so-called expressions of willingness).

As for funding operations carried out during the year, the Bank registered an increase in bills of exchange, which complement the new debt collection method consisting in settlement plans (expressions of willingness). Funding from the above-mentioned instruments totalled 244,5 million Euro in 2015. Collections made during the year amounted to 40,0 million, compared to 32,6 million in 2014.
The purchases made in the period led to the acquisition of portfolios of financial receivables with a par value of 4,1 billion Euro at a price of 217,8 million Euro (i.e. 5,3% of the par value), consisting of 538.240 case.
Among the most significant acquisitions made in 2015, the Bank bought a portfolio with a par value of nearly 650 million Euro from Banca Monte dei Paschi di Siena, for 37,0 million Euro; it bought a portfolio with a par value of about 1,3 billion Euro from a company specialising in securitisation vehicles that counts among its investors a leading US investment fund, at a price of 44,5 million Euro; and it bought a portfolio with a par value of 226,2 million Euro from Consel, a Banca Sella Group company, for 24,0 million Euro.

As a result of these acquisitions, the portfolio managed by the DRL segment includes 1.058.589 positions, for a par value of nearly 8,2 billion Euro.