3. Non-performing Loans in the Euro Area

In 2013, the Resolution of Credit and Other Institutions Law 17(I)/2013 was enacted. It allowed the Resolution Authority of Cyprus (Central Bank of Cyprus) to take steps in order to maintain stability in the banking and financial services industry, and granted it the power to adopt and implement resolution measures regarding affected institutions. The Resolution Law was implemented ahead of EU Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 because of the difficulties faced by Cypriot banks in 2013. The Resolution Law of 2013 was replaced by legislation enacted on 18 March 2016, namely Law 22(I)/2016 on the Regulation of the Resolution of Credit Institutions and Investment Companies and related matters for the purposes of harmonising the measures available under Cyprus law with those set out in Directive 2014/59/EU (Alexandrou et al. 2018).

The Immovable Property (Transfer and Mortgage) Law, No. 9/1965, as amended by Law 139(I)/2015 is part of the reform strategy. As for personal insolvency, provisions are set out in the Bankruptcy Law (Chapter 5) and the Bankruptcy Rules. In addition, the Insolvency of Individuals (Personal Repayment and Relief Plans) Law 65(I)/2015 provides for the handling of insolvent individuals. The Companies Law (Chapter 113) governs corporate insolvency and reorganisation. In 2015, the Companies Law was amended to introduce the notion of examinership into Cyprus Law. As such, companies may be reorganised to meet their financial obligations. Furthermore, the Companies Law allows for corporate reorganisation, which under Section 30 of the Income Tax Law 118(I) of 2002 includes the following: merger, division, partial division, transfer of assets, exchange of shares and transfer of registered office. Certain provisions of the Bankruptcy Law regarding the rights of secured and unsecured creditors are also applicable to the winding up of insolvent companies (Alexandrou et al. 2018).

Decree Law No. 75/2017 of 26 June 2017.

Atlante is an Italian private equity fund that was dedicated to recapitalise some Italian banks, as well as purchase the securities of the junior tranches of non-performing loans. The fund was managed by Quaestio Capital Management SGR S.p.A., a wholly owned subsidiary of Quaestio Holding S.A., which was owned by Fondazione Cariplo (37.65%), Fondazione Cassa dei Risparmi di Forlì (6.75%), Cassa Italiana di Previdenza e Assistenza dei Geometri liberi professionisti (18%), Locke S.r.l. (22%) and Direzione Generale Opere Don Bosco (15.60%). Atlante’s investors were 67 Italian and foreign Institutions, including banks, insurance companies, banking foundations and the Cassa Depositi e Prestiti. Although a full analysis of Atlante is outside the scope of this book, it was initially set up to help free Italy’s banks of bad debt. Atlante could invest in banks with a lower capital ratio than the minimum established in the context of the SREP and that therefore, upon request by the Supervisory Authority, implement initiatives to reinforce capital by means of a share capital increase, and/or, in NPLs originating from a variety of Italian banks (Quaestio Capital Management 2019). It eventually made an offer to buy the impaired loans of three small banks that were rescued from bankruptcy in 2015 (Reuters 2016). It raised 4.25 billion euros from banks and insurers, as well as some funding from state-owned entities, but spent over half of that to recapitalise regional banks Popolare di Vicenza and Veneto Banca. A second fund (Atlante II) was subsequently created. The fund, renamed “Italian Recovery Fund” is involved in four securitisations of approximately euro 31 billion gross of NPLs, with an investment of about euro 2.5 billion. Established thanks to the commitment of Italian and international financial institutions, at a time of crisis in the Italian banking system to exclusively invest in the impaired loans, the Italian Recovery Fund is the largest investor dedicated to Italy’s NPL market. It was involved in four securitisations of approximately euro 31 billion gross of NPLs (about half of the total euro 65 billion of operations estimated by the IMF for 2017 in Italy) with a total investment of about euro 2.5 billion.

Its presence in the market allowed to solve by means of divestments or recapitalisations, situations of bank crises, including Nuova Banca Marche, Nuova Banca dell’Etruria, Nuova Cassa di Risparmio di Chieti, Nuova Cassa di Risparmio di Ferrara, Banca MPS, Cassa di Risparmio di Cesena, Cassa di Risparmio di Rimini and Cassa di Risparmio di San Miniato.

In 2017, the EBA launched a public consultation and a discussion paper on the significant risk transfer in securitisation to better adapt the regulatory framework to the characteristics of securitisation transactions, especially those involving underlying NPLs, and to facilitate the harmonisation of supervisory practices.