Italian banks are feeling the strain of the European Central Bank’s calendar provisioning rule, a policy that forces lenders to write down deteriorated loans over three to seven years depending on collateral.
How the rule reshaped Bff’s factoring model
Milano‑based Bff built a sizable franchise around public‑sector factoring, counting on the certainty of state payments. Late settlements turned those guarantees into a source of high late‑payment interest, effectively a “golden egg” for the bank.
A newer EU definition of default accelerated the shift from performing to non‑performing status, prompting the Bank of Italy to intervene twice. In 2024 regulators required a reclassification of about €1.4 billion of loans, and a later inspection uncovered an additional €1.3 billion of troubled assets, leading to the appointment of two supervisors to work with the board.
The capital shortfall that followed forced Bff to confront the provisioning rule’s growing capital demand. After revising its 2025 outlook, the bank’s total capital ratio briefly fell below the Srep threshold before recovering in the first quarter.
Analysts warn the 2028 deadline, when the rule mandates a full write‑down of remaining non‑performing exposures, could revive pressure unless sizable sales materialize.
Management is currently weighing a €1.2 billion securitisation, though the transaction may not fully cover the financing gap.
Ifis pivots away from distressed‑loan revenue
For years, the family‑owned Ifis bank relied heavily on the non‑performing loan (NPL) market, harvesting profit from buying and managing distressed credit. The recent supervisory inspection in late June forced the bank to adjust €30 million in provisions and add another €40 million for securitised troubled portfolios, a stock it had inherited from challenger bank illimity.
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The findings spurred Ifis to exit the NPL segment, citing the desire to avoid future impacts of the provisioning rule. The institution now focuses on commercial banking, small‑business lending, and wealth management.
Three U.S. funds—Apollo, Fortress and Cerberus—are reportedly eyeing the bank’s remaining NPL assets.
Industry observers note that while the bank’s earnings may stabilize, the transition highlights a broader trend: generalist lenders are shedding legacy distressed‑loan businesses in favor of more resilient activities.
For borrowers, especially small firms dependent on niche credit, the change could mean fewer specialised financing options and a greater reliance on larger, diversified banks that are less exposed to regulatory volatility.
Overall, the two cases illustrate how the ECB’s policy has nudged institutions toward cleaner balance sheets.
As the requirement to fully write down deteriorated exposures tightens, banks that once thrived on high‑yield distressed assets are now re‑evaluating their strategic focus.
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