The Bank's reference market is the short-term trade receivable segment (short-term cash loans to non-financial companies and producer households), which amounted to 241 billion Euro at 30/09/2015. Overall, it was down 30% from 31 December 2008, when it was worth 360 billion Euro.
Credi Impresa Futuro - The factoring market accounts for only a fraction of Banca IFIS's reference market, and therefore turnover and the relevant positioning do not represent a strategic goal for the Bank, although they have a positive impact in terms of image, value and market perception.
Over the first ten months of 2015, this market grew by over 3% in terms of turnover, confirming the growth trend that started in 2014. During 2010-2011, there was a significant shift in corporate loans from traditional banking products to factoring as a result of the limited liquidity available in conventional bank funding channels for several corporate counterparties. This significantly boosted volumes. Credi Impresa Futuro has 29 branches throughout Italy and a sales network consisting of over 100 professionals.
Pharma and Pharmacies - Banca IFIS entered the Pharma segment five years ago. By leveraging specialist skills, it has developed a significant presence over time, and continues growing at a fast pace thanks to a very aggressive pricing policy and ongoing relations will all major international pharmaceutical groups that work with Italy's National Health Service.
In Italy there are approximately 18.000 pharmacies, at least one in each municipality. The Bank recently started lending to pharmacies—a good opportunity for diversifying its business with low marginal costs. Indeed, each pharmacy serves on average 3.400 people, a figure in line with the European average. The total turnover generated by pharmacies accounts for nearly 66% of Italy's pharmaceutical spending, i.e. an annual 16,5 billion Euro. The sales of prescription drugs that pharmacies submit to Italy's National Health Service for reimbursement in the form of DCRs (Distinta Contabile Riepilogativa, a report summarising monthly prescription sales) total approximately 11 billion Euro (41% of Italy's pharmaceutical spending).
As for the state of pharmacies, since the crisis large pharmaceutical distributors have been imposing shorter payment terms, preventing pharmacies from accessing favourable purchase terms and forcing them to seek new financing solutions to manage working capital. Concerning financing, the current situation has made the opportunity to support pharmacies all the more attractive. The specialist financial players operating in this market, and especially the companies that are not part of banking groups, have been struggling to obtain liquidity and distribute their product. This has forced some of them to restructure or wind down their operations.
International - against an economic backdrop in which international trade has contracted because of uneven global economic growth, commodity prices have collapsed and exchange rates have been volatile, the Factoring market managed to expand. Banca IFIS operates internationally through the 100% owned subsidiary IFIS Finance Sp z.o.o., located in Poland, a representative office in Romania, an equity investment in India, and the international office based in Milan, which focuses mainly on import factoring. As for the Polish factoring market, the subsidiary IFIS Finance's market share is slightly above 1% in terms of turnover.
Distressed Retail Loans (DRL)
The non-performing loans (NPL) market is characterised by the presence of players who approach the business in different ways and focus their attention on portfolios that are often not homogeneous, especially as for the type of receivable that is bought, the type of account debtors, and the methods of collection.
As for the type of receivables bought, they can be divided into at least the following segments:
- NPLs from property-backed mortgages (residential, commercial or industrial properties);
- NPLs from various financial products and guaranteed by third parties (through surety bonds, loan guarantee consortia, others);
- NPLs from asset/salary-backed consumer credit/retail loans due from individuals;
- NPLs from consumer, renting, and automotive loans, or unsecured retail loans.
There are essentially two type of debtors: individuals with or without steady employment or pension income, and businesses, differentiating between limited companies on the one hand and partnerships/sole proprietorships on the other. In terms of collection operations, there are two macro-areas, i.e. judicial and non-judicial. All these differentiators significantly influence the NPL portfolios’ potential to generate cash flows, as well as the supporting operational processes and organisational structure, collection costs, and, above all, the costs for purchasing the portfolios from the originators (usually financial companies related to banking groups, but also retailers of goods or services, or other intermediaries operating in the NPL sector).
Furthermore, there are players with different approaches to taking risks: some acquire and manage their portfolios until they collect the receivables, while others focus just on managing them for a fee (and the two often cooperate).
The above variables are key for assessing the NPL market, resulting in the presence of both very large and small players with diverse approaches, subject to different regulations, and equipped with varying financial and technological resources.
The Bank's NPL Area, which operates in the retail market under the CrediFamiglia brand, focuses mainly on NPLs from consumer, renting, and automotive loans, as well as unsecured retail loans. It operates also in the segment of NPLs from asset/salary-backed consumer credit/retail loans due from individuals. On rare occasions, Banca IFIS's NPL Area even dealt with NPLs from various financial products and guaranteed by third parties (through surety bonds, loan guarantee consortia, others). The NPL Area usually buys portfolios of receivables directly from lenders, but it may also purchase them from other sellers. This market is known as “secondary”: while it is already mature and active in other countries, in Italy it is still developing. The NPL Area will purchase the above asset classes on both the primary and secondary markets. It may also consider selling part of the portfolios acquired after turning the account debtors into paying customers, earning a significant margin relative to their purchase price right away. In 2015, the Bank bought a total of 4,1 billion Euro (par value) and sold 1,4 billion Euro (par value) in receivables.
The NPL Area is constantly innovating, looking for alternative payment methods allowing the debtors willing to settle their dues to do so using new and more flexible approaches. In this sense, it is currently reviewing the collection process in order to focus on turning the debtor into a customer, thus actively managing the relevant relationship also through CRM approaches. Concerning debtors who may settle their debts but are not willing to do so, the NPL Area defined a court-ordered collection procedure to distrain one-fifth of the debtor's salary or pension. The Bank is currently bolstering its Call Centre, which will both assist with existing settlement plans (issuing reminders and collecting individual instalments by phone) and start processing portfolios by phone.
According to Cerved's Quarterly Observatory on Corporate Crises, in the first six months of 2015 there were encouraging signs concerning the health of Italian businesses: all proceedings monitored by the Observatory declined. 7.600 insolvency proceedings were initiated in the first half of 2015, down 6,8% from the prior-year period. The decrease in bankruptcies during the first six months of 2015 was registered for all forms of business, although with significant differences: -6,0% for limited companies, -11,8% for partnerships, and -6,6% for other forms. As for sectors, only manufacturing posted a double-digit decline (-16,4%), whereas construction and services were down by 7,4% and 4,5%, respectively.
1.300 non-bankruptcy workouts were entered into between January and June, down from the prior-year period (-12%). Fast Finance has historically controlled over 50% of this market, with the rest essentially represented by financial firms (as defined in art 106 of the Consolidated Banking Act). Among these, the main competitors are La Colombo Finanziaria S.p.A., Interfinance S.p.A (in partnership with Banca Sistema), Viva S.p.A., FED S.p.A., Be Finance S.r.l., STAF S.r.l., and NAOS Finanziaria S.p.A.. Finally, there is also the doBank Group, which however has a negligible presence.
In 2015, Banca IFIS continued funding its operations with collateralised interbank loans through repurchase agreements, relying on a significant pool of Italian government bonds accepted as collateral by other lenders or, as a last resort, on the Eurosystem, thanks to the liquidity provided by the ECB.
The Bank participated in the ECB's second TLTRO (Targeted Long Term Refinancing Operation) auction, borrowing 119,8 million Euro in December for 4 years at a fixed 0,15% rate.
Funding never showed signs of stress and securities trading generated positive results in terms of profitability, helping to ease retail funding costs. These are higher on the online market, where the volatility of deposits not sufficiently remunerative for customers may represent a risk.
The retail funding market, and specifically the segment of online savings accounts, presents mature product offerings from conventional banks with branch networks dedicated to direct funding as well as players specialising in online funding. However, retail funding—through the rendimax savings account and the contomax current account—remains key for Banca IFIS.
At the end of the year, it reported over 3,0 billion Euro in funding (of which 64 million Euro from contomax), or slightly above 0,2% as a proportion of deposits Italian customers hold with the country's banks.
The growth in deposits over the last year is mainly attributable to four factors:
- the change in interest rates: over the last 24 months, Banca IFIS has gradually reduced the yields on its deposits, as a result of both the continued decline in market interest rates and the repositioning of the offerings of all players; during 2014, it lowered the rate of return offered to depositors four times. Starting from the third quarter of 2015, however, interest rates on longer-term deposits have risen;
- the market context: overall, bank funding (deposits and bonds) from individuals has been declining year-on-year throughout 2014 and the first nine months of 2015, especially because of the trend in bonds; it has returned to growth starting from October 2015;
- introduction of 3-, 4-, and 5-year maturities: They were introduced in September 2015 and proved crucial in reversing the trend in retail funding seen at the time;
- Italian government bond yields, which represent for private savers the most suitable alternative to savings accounts. The decline in government bond yields has been the other factor that allowed to reduce interest rates without affecting funding volumes.