NPL Meeting 2021 - Frederik Geertman, AD Banca IFIS

but optimistic considering the moment. We are also, as I mentioned a moment ago, we are also a bank that serves entities and less, so we don't only have an observatory on the entity side, which is ultimately part of a process for the entity, but also at the beginning when we assist companies, and we also had our credit subject to moratorium, so we see from customer behavior that the vast majority of customers have resumed paying. They could have postponed this moment until the end of the year, the end of 2021, but in the vast majority of cases, close to 80 percent, they have chosen to resume paying the installments. For the remaining part, we are obviously talking to these customers, asking them how they see the situation, and we believe that even there, those who will ultimately have real difficulties will be single digit, as the English say, so a single-digit percentage under 10 percent, around 10 percent. So in the end, giving time seems to have allowed many to cross this stretch of desert. We also see that the data, let's say, that the government is using, the forecasts of even more specialized actors in this type of thing, are trending upward, so the growth rate for this year is being increased in estimates as the year goes on. We also see it in the attitudes of companies. Of course, there are sectors heavily impacted, certainly there will be an increase in the flow of non-performing loans when the moratoriums expire, the incagli, the non-performing loans, UTP and NPL to use today's terminology. That increase will happen. If you had asked me in April 2020, I would have imagined decidedly darker scenarios, but perhaps even six months ago I would have been a bit more pessimistic about what we can expect. There is a fairly widespread feeling of recovery, a fairly widespread optimism, and I believe that, as someone said this morning, the fact that there is a tool, the vaccination program, and that this program is going well in our country, thank goodness, probably makes it a bit different from the shocks we have seen previously, which had multiple causes, all difficult to frame, long-term imbalances very complicated to fix. Think of 2008, there was a financial crisis, 2011 a public debt crisis and a European institutional crisis together. Today we have a pandemic, which obviously is a shocking thing even on a psychological and emotional level for everyone, but we are also seeing a set of measures that can help solve that specific problem, at least greatly improve it, and perhaps this summer, but each of us can have our own ideas, perhaps this summer was a moment when we all together began to glimpse that perhaps we were on the way out. So the combination of the psychological factor, what we see in the statistics, the moratoriums, the government's own estimates regarding the economy, one puts these things together and says maybe we are doing a little better than some months ago, better than we thought a few months ago. So considering the situation, positive, but the context is that we lost many GDP points last year, so this rebound is still partial.

Regarding our then, if one looks at the transactions, i.e., portfolio sales, we have made forecasts that still show the majority of transactions on NPLs and we said 50 billion euros per year over the next two years, of which 40 billion NPLs and 10 billion UTPs. If one takes the bank's perspective instead, it is logical that they have a very important issue of UTPs on their balance sheets. The issue of UTPs will be important because the first wave will naturally go there, and in their strategy for managing these credits, there will also be, as mentioned by the representatives of the two major Italian banks, a decision on what to sell and what to keep. Not all of that UTP amount will go for sale, while NPLs, I believe, are now generally quite customary to sell. So you spoke about the overtaking. The issue is certainly very important, and inside bank balance sheets, it may be because somewhere we will see overtaking, so more UTP than NPL, that is in full swing, but as far as the market for purchases, we think we will see even more NPLs, which is what everyone is here for. The role we already have, we remain, for as much as obviously we always have to see what the market offers, because we are buying what the market evidently makes available, but we see our specialty as that of small ticket unsecured, so small practices under 100,000 euros to give you a guideline, even smaller, without guarantee. This is historically the specialty of when you are so specialized in one thing, it happens that you often know how to price it better and value it better. We may be, by buying somewhat mixed portfolios, we could end up managing some secured ones as well, but nothing discontinuous will happen with respect to this specialization. What I can imagine is that with some of these actors we will enter into longer-term collaboration, so more continuous flows to manage their risks on an ongoing basis. The market was created with an auction mechanism. There are markets where they have moved to more tap mechanisms. Obviously, the auction was necessary when the banks had a gigantic problem and needed to do large transactions to get rid of them. A tap system, i.e., continuous flow, perhaps with two or three partners who buy your practices continuously, quarterly or monthly, lends itself more to a situation where you are already relatively clean, relatively in order, and you maintain yourself in this way with this flow. These are decisions that must be made by the originators, i.e., the banks. We are available in one way or another. So I have described a trend that I see in the market as our industry becomes more sophisticated.

So regarding the 7, Dario, it's true. We are a listed bank with a reference shareholder that has a controlling stake. We do not consider ourselves a public company in the sense of not having a reference shareholder. That is obviously not us, because there is clearly a reference shareholder, but we consider ourselves a listed company on a public market, and therefore with all the responsibilities that entails. So respect for the interests of all shareholders in the decisions you make, attention to operations that could in some way be in the short, medium, long term not in the interest of everyone. I have perceived an attention on long-term value creation from the reference shareholder on the one hand, and on the other a strong attention on ESG components. These are perhaps the two things that characterize the dialogue that exists. So solid strategies of long-term value creation due to their intention to remain, also stated publicly by the family perhaps, and a great sensitivity to sustainability issues, especially on the 'S' component, the social one, of the ESG framework, particularly given the sector in which we operate.