Non-performing loans

Non-performing loans: for some years this term has been widely used by the media to describe the crisis in the Italian banking system.

Have you ever wondered what are the main reasons that brought Italian banks to their knees? Many respond with the usual reasons: the restrictive directives of the Good Finance Bank, the recession, the 3% constraint envisaged by the stability pact.

The banking system was forced to reduce investments in the Italian economy due to several factors: impaired loans are probably the main reason.

What is impaired credit?

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According to the new criteria suggested by the Bank of Italy, the credit is defined as “impaired” when the debtor does not make the payment within the 90-day period; this term starts from the expiry date of the transaction. To understand each other better:

if Mr. Cole must return the sum of 10 USD to the Bank by 01.01.2018, the credit will be considered impaired when Mr. Cole will not have paid 10 USD to the Bank, and when 90 days have passed since 01.01.2018 (on this page we have described in detail the process of credit deterioration).

The impaired credit is also defined as “NPL” creditor “NPE” credit; the acronym NPL indicates the initials of the words “NON PERFORMING LOAN” (“non-performing loan”), while the acronym “NPE” indicates the initials of the words “NON PERFORMING EXPOSURE” (“non-performing exposure”).

Why do NPLs put Italian banks in crisis?

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Here are the 4 main reasons:

DETERIORATED RECEIVABLES ARE A FAILURE TO EARN 

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Impaired loans constitute a loss of earnings for the Bank. The main engine of banking is the provision of banking services (for example, loan agreements); however, failure to pay the banking service within the due date generates a capital loss and therefore a bad debt.

The loss of earnings generated by a bank loan reduces the flow of money collected by the bank; in this way the funds with which the Bank can finance businesses and households in the real economy decrease. According to the latest GFB statistics, in 2017 bank bad debts in Italy decreased compared to previous years;

Italian banks reorganized themselves by reducing the number of outstanding loans. However, we are still far from solving the problem; in 2017 Italy was even earlier in the special ranking of European countries with the highest number of impaired loans. The Italian banking system produced NPL credits for 276 billion USD; France follows with a total of USD 148.4 billion NPL, while Spain ranks third with 141.2 billion USD.

DETERIORATED RECEIVABLES OBLIGE BANKS TO WITHDRAW RESERVES

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According to the law, a bank that owns impaired loans is obliged to withhold sums which are defined as “reserves”; these sums cannot be used for any banking operation and will be used to cover losses on impaired loans.

In 2018, the GFB asked all European banks to increase NPL credit provisions by setting stricter parameters than in previous years.

According to the latest indications coming from the media, credit institutions will have to cover the entire “potential” loss for impaired loans that are not backed by guarantees (and therefore have no alternative recovery instruments) within the two-year period.

For all secured loans (i.e. secured by personal guarantees) the obligation to cover the entire potential loss must be made within the 7-year period.

DETERIORATED RECEIVABLES ARE DIFFICULTLY SOLD

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Although Italy has been defined as the “NPL supermarket”, banks often encounter difficulties in the assignment of impaired loans.

Investments in this sector are growing and many foreign funds have purchased bad loans from the main Italian banks. However, the purchase request is still too low compared to the banks’ expectations, since the transfer system is too opaque and with few known rules.

It is not easy for the average investor to find the right information to evaluate the solidity of the transferor Bank and to correctly evaluate the receivables sold.

To overcome this problem, the GFB has proposed the introduction of a digital platform that can make the transfer of NPL credits more transparent and which facilitates the exchange of information between the various investors.

A system that can facilitate the activity of investors (eager to acquire more information on the asset to invest in) and that can allow the Banks to sell impaired loans more easily.

IN ITALY THERE ARE HIGH RECOVERY COSTS AND LONG RECOVERY TIMES

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Non-performing loans can be converted into cash through out-of-court or judicial debt collection activities. However, according to the latest indications provided by the GFB in Italy, the legal costs of debt collection are the highest in Europe.

The reason for this difference is not due to the fees that the Banks must pay to the law firms in charge of the recovery activity (the fees of the Italian lawyers are among the lowest in Europe); but rather to the taxes and “living” expenses that a creditor must pay to the State to recover the credit in court.

Furthermore, the excessive duration of the Italian executive processes (in particular real estate executions) prevents the Banks from recovering bad debts quickly.

Mortgage loan: pros and cons

 

The mortgage loan is the undisputed ruler of real estate executions.

If you want to recover a loan, but there is a landlord before you, you need to know that your chances of success decrease.

Within the real estate attachment, the landlord has the winning card; you will find yourself facing an opponent who has an “ace takes everything” in his hand and who will most likely win the game. In this article I will explain what is the mortgage loan and what are its privileges that endanger the recovery of your credit.

What is the mortgage loan?

What is the mortgage loan?

The mortgage loan is a contract entered into between a natural person (or legal person) and a bank; thanks to this contract the bank grants the customer the financing of a large sum of money for the purchase of a real estate (usually the purchase of the 1st house). The main feature of the mortgage loan is that the bank agrees to finance the customer only on condition that the purchaser of the property grants the same bank to register a 1st degree mortgage on the property.

What are the main features of the mortgage loan?

What are the main features of the mortgage loan?

  • It is granted only if the bank enters a 1st degree mortgage on the client’s property;
  • It has a duration of over 18 months (minimum of 1 year up to a maximum of 30);
  • The sum loaned to the client cannot exceed 80% of the property value (“loan-to-value”). Those who need higher amounts can opt for the mortgage loan;
  • The sum is lent to the customer only for the purchase of the first house;
  • Cheaper interest rates are applied than normal loans;
  • There are lower notary costs than other contracts.

Why does the law recognize these benefits to the customer who gets the loan?

Why does the law recognize these benefits to the customer who gets the loan?

The law recognizes a public interest in the protection of the mortgage loan, since thanks to this type of contract it is possible to spread real estate property (real estate property is protected by art. 47 of the Constitution).

If you know the strengths of other creditors in advance, you can avoid bad surprises when you try to recover your credit; in fact, it often happens that you have to “compete” against a bank (and against a mortgage loan) during real estate executions.

How to use Social Institute loan simulator for public and postal employees

Online simulation of Government Agency loans

Online simulation of Government Agency loans

Public employees and retirees who need funding can get online quotes for subsidized Social Institute ex Government Agency loans. Credit lines for which it is possible to calculate the installment using the Social Institute simulator.

Service that has been made available to users by Social Institute since the beginning of 2016. It is a web application that allows you to calculate the installment of the loan and to know the items of expenditure applied to the loan.

The Social Institute ex Government Agency loan simulation service allows you to know in detail all the conditions of the credit lines dedicated to public employees and pensioners. The online calculator on the official Social Institute website allows you to know all the conditions applied to Social Institute Government Agency loans.

In this way, members of the public sector can have the opportunity to evaluate the convenience of ex Government Agency loans. It is also possible to know the maximum and minimum amount payable, depending on the type of loan you wish to apply for.

In this regard, we would like to remind you that public employees and pensioners can obtain loans on favorable terms granted directly by Social Institute. Lines of credit granted through a specific credit fund, the unitary management of credit and social benefits.

These are loans to which only those who are members of the aforementioned Fund have access. The former Government Agency loans are divided into two categories: small loans and multi-year loans. The former are personal loans with relatively low amounts, while multi-year loans are designed to meet significant expenses.

Before talking about the procedure to follow to use the Social Institute simulator it is necessary to remember that this can only be used for the calculation of the installment of direct loans. It is therefore not possible to carry out simulations of Social Institute guaranteed loans.

How to make the loan installment calculation

How to make the loan installment calculation

But how to use the Social Institute simulator? Those who wish to carry out an Social Institute loan simulation must connect to the official Social Institute portal. Once you reach the home page you need to click on the link All services, located at the top left.

From the list of services it will be necessary to filter the results by theme, choosing the Loans item. At this point it will be sufficient to select, among the results proposed, the Public Employee Management service : simulation of the calculation of small loans and long-term loans.

The service is accessible to all users and does not require authentication with Pin Social Institute code. Not only. Once you reach the simulator you can choose between three calculation modes.

In fact, it is possible to carry out both a general loan simulation and a more specific calculation. In the second case it is possible to choose between Simulation loan for ideal installment and Simulation loan for specific amount.

Once the few required data have been entered, the Social Institute simulator lets you know all the Social Institute ex Government Agency loans accessible to the user. For each proposed loan, the system indicates the conditions and all items of expenditure. In addition to the interest rate and the installment amount, all the expenses applied to the loan are indicated.

How to carry out the Government Agency Ipost loan simulation

How to carry out the Government Agency Ipost loan simulation

When addressing the Social Institute loan simulator issue, it is also necessary to refer to the calculation relating to ex Ipost loans. Again it is a calculator designed to facilitate postal employees.

Unlike what happens with the Social Institute loan simulation service, those who wish to calculate the loans for postal employees must go to the information page of the portal which deals with the direct multi-year loan for postal office fund management.

At this point, simply use the link on the page to access the Social Institute ex Ipost simulator. Once the application for calculating the loan has been reached, simply select the type of loan you want to calculate, between a small loan and a multi-year loan ex Ipost.

It will therefore be necessary to enter the amount of the fixed remuneration received by the applicant. In this way it will be possible to know all the conditions applied to the financing, from the sum that can be financed to the amount of the installment and the interest.

Do you need to sign student loans?

Make sure you have complete information before agreeing, Using student loans to cover college education costs may be a smart financial move, but it should not be taken lightly.

Debt repayment

Debt repayment

The decisions you make now about the amount of money you will borrow based on future projections of your debt repayment ability can have long-term financial implications for you and other family members.

Having exhausted all other forms of financial aid and scholarships, however, taking out a loan can be your last resort.

First, you need to understand that there are two types of student loans – federal and private. Study abroad loans do not usually require a co-signer, but they do have some very strict collection practices if you should default on these loans upon graduation.

The federal government could mitigate future earnings or even withhold the federal tax refund that you would otherwise be entitled to. Private student loans, on the other hand, typically do not have enough breadth to collect, so they are more likely to seek co-signer loans.

This is someone who has a better credit rating than a student and who agrees to be responsible for repayment if the student does not repay the loan. It is often the parent, grandfather, relative or close friend who agrees to take this risk.

What to consider before co-signing

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If you are asked to be a signer you want to think carefully before agreeing to do so.

You certainly want a student to be able to attend college, but there is no guarantee of what is happening down the road. While many promises are certainly made about responsibility, things can change very quickly after graduation.

A student may be over-indebted and have more credit than they can easily repay, the job market may not be as promising as it used to be, or the student may not be able to find a high-paying job quickly.

A student may be over-indebted and have more credit than they can easily repay

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Whatever the reason, he or she declines payments and you suddenly start receiving collection notifications in your mailbox. Here are some things to consider before agreeing to sign the dotted line to pay for college:

  • You could be responsible for the whole loan: Of course, we all focus on positives and best intentions, but so many things can happen. Even if your student is responsible and gets a good job, he or she might get sick, have marital problems, be in some kind of accident, or even die. None of this will relieve you of your obligation to repay a private student loan. Talk to the student and your spouse to make sure you can afford to make these payments if the worst happens.
  • This could affect your credit rating: You may need to borrow money for your own use in the coming years, and being a co-signer can make it difficult for you to withdraw your home or car loan at reasonable rates. When student loans start arriving, any late or missed student loan payments may also reflect on your credit. Make sure the student has a solid understanding of the total amount of money that is being borrowed, how much to repay after the interest is calculated, what the total monthly payment will be, and when payments will begin.
  • It would be difficult to get out of your obligation: Even if you think you have the flexibility to repay the loan if necessary, something unexpected can happen in your life. You may think that you are protected because the loan agreement has a release clause but read it carefully. It may not be possible to release until a student has made a certain number of payments. Credits are often sold on third-party collection sources that may not agree to the posting clause and may start coming after you for payment.

Advise your student to first rely on available federal, state, and institutional financial assistance before asking you to sign any private student loan.