AMCO, Credito Fondiario in race to buy UTP loans from Banco BPM - sources

MILAN, Sept 30 (Reuters) - Italian state-owned bad loan manager AMCO and rival Credito Fondiario are in a race to buy loans known as ‘unlikely to pay’ (UTP) worth around 1 billion euros from Banco BPM, three sources familiar with the matter said.

Banco BPM has drastically reduced the amount of defaulted loans on its balance sheet, but it has yet to tackle UTP loans, which are not yet in default but are unlikely to be repaid in full.

Unlike defaulted borrowers, UTP borrowers are often businesses which are still operational, and the best chance of recovering the loans can lie in turning them around.

One of the sources said that AMCO and Credito Fondiario are expected to submit offers next week.

Earlier this year Banco BPM Chief Executive Giuseppe Castagna told analysts that the lender planned to further reduce the share of problem loans over total lending. He added that the bank was monitoring the market with a view to selling soured loans in the last part of 2020, but without eating into its capital buffer to do so.

Credito Fondiario and AMCO declined to comment.

A spokeswoman for Banco BPM said the bank was “still at an exploratory and interlocutory stage with the market” on a potential transaction.

In the second quarter Banco BPM held 9.8 billion euros of impaired loans, of which 6.2 billion were UTPs.

Analysts at Equita Sim calculated that a 1 billion euro transaction should cut the NPE (non-performing exposure) ratio to 7.6% from 8.9%.

The coronavirus pandemic is expected to unleash a new wave of impaired loans once support measures granted by the government, such as debt holidays, end, with UTP loan debtors suffering the most. (Reporting by Andrea Mandalà, Valentina Za, editing by Giulia Segreti and Kirsten Donovan)