The annual reduction was mainly driven by lower extrajudicial proceeds: DPOs were down 36% and note sales 38%. Since the seasoning of the transactions in our sample is high (5.4 years), the decline in DPOs is likely explained by the fact that servicers mainly adopt this strategy at the beginning of transaction lifecycles. Meanwhile note sales are strongly influenced by demand so are pursued on a portfolio-by-portfolio basis, making volumes volatile.

Total gross proceeds of pre-Covid originated transactions

Source: Scope calculations on servicing reports

During the pandemic when the courts were closed, servicers relied on alternative collection methods (DPOs and note sales). But as the courts are once again working as before, Italian NPL servicers favour a judicial approach that in general grants higher collections even though it takes longer. The rise in interest rates and the stressed macroeconomic scenario has also reduced the margin on extrajudicial strategies.

Download the latest Italian NPL collections monthly.

Stay up to date with Scope’s ratings and research by signing up to our newsletters across credit, ESG and funds. Click here to register.