The Italian NPL market The Place To Be

July 2017 www.pwc.com/it/npl

Foreword

The Italian NPL market is now definitively “The Place To These latest trends in the market witnesses the importance Be”, due to the volumes of NPL, the highest in Europe the Italian banks are gradually attributing to the issue of yet (€ 324bn of GBV at the end of 2016) and the recent their Unlikely to Pay exposures (GBV equal to €117bn and trends in the Italian NPL arena. Ailing banks are going NBV to €87bn). In this respect, ECB guidelines provide a through a restructuring process, significant banks are great opportunity to renovate and improve the proactive engaged in massive NPL deleverage plans, overall the NPL management of NPL to address the issue of their massive management is passing through a prominent overhaul stock. ECB guidelines will require the adoption and under new ECB guidelines and the NPL servicers are implementation of a renovated strategic management experiencing a deep evolution and facing consolidation along with a structured deleverage approach. Furthermore manoeuvres. IFRS9, in place from 1 January 2018, will lead to an «early warning» and «forward looking» approach, which could On one hand, ailing Italian banks are going through a likely result in higher reclassification of performing loans restructuring phase ultimately affecting the NPL market. to NPL and overall higher provisions. In May 2017 UBI acquired three regional lenders (Banca Marche, BPEL and CariChieti) and BPER acquired the The credit management industry, in particular the NPL regional bank CariFerrara, following their rescue in 2015 servicing segment, is experiencing a strong evolution. The by Italian Authorities and the sale of their NPL to the role of independent specialized NPL servicers is gaining bad bank “REV”(€10.3bn) in 2015 and to Atlante Fund importance driven by increasing volumes of portfolio (€2.2bn) in 2017. disposals from Banks to Investors, together with growing outsourcing of recovery activities by banks driven by lack Restructuring measures for other entities overburdened of capacity, and fostered by the implementation of ECB by their Bad Loans as MPS (€29.4bn), Banca Popolare di guidelines. As a result, the servicing market displays, on Vicenza (€5.1bn), Veneto Banca (€3.3bn), are currently one hand, consolidation movements among the players in progress but, once occurred, they will affect the NPL and, on the other hand, new M&A opportunities. market in the near future. Even smaller regional banks, as CariCesena, Carim and Carismi (totaling €2.8bn of Bad Lastly, the recent amendments of the Italian law on Loans), are committed in the research of restructuring securitization on June 2017, allowing the SPVs to purchase solutions to address the issue of their non-performing the asset securing securitized receivables (including assets exposures. We need to see how the recent urgent measures subject to leasing agreements), will result in a higher enacted by the Government to liquidate the NPL of Banca number of transactions by encouraging more players, both Popolare di Vicenza and Veneto Banca (€ 16.8bn at the end originators and investors, to enter this market. of 2016) will affect the wider banking sector. Based on the trends and movements observed in the On the other hand, big Italian banks started to implement market, we expect that the NPL transactions’ volumes deleverage plans aimed at reducing their NPL ratios. could easily reach and overcome € 60 billion in 2017. Unicredit, Intesa Sanpaolo and Banco BMP implemented their plans to sell €17.7bn, €2.5bn and €0.8bn of NPL Looking at the current trends, we see the Italian NPL respectively. The deleverage phase introduced new trends market as “The Place To Be”. The environment became in the market as the sale of portfolios composed by mixed vibrant and dynamic and it is where the need and the long asset class as well as portfolios made by a limited number for innovative solutions will lead to deals, restructuring of borrowers specialised in real estate developments and and internal reorganization opportunities, to not miss out, sale of single names under restructuring (Unlikely To Pay for a wide audience. exposures).

Pier Paolo Masenza Fedele Pascuzzi Vito Ruscigno Alessandro Biondi Financial Services Deals Business Recovery Co-Head NPL Co-Head NPL Leader Services Leader [email protected] [email protected] [email protected] [email protected] The terms of NPL (“Non Performing Loans”) and NPE (“Non Performing Exposures”) are used interchangeably within this study. This recommendation was even explained in the “Guidance to banks on non-performing loans (March 2017)” released by ECB – Banking Supervision*

Content

Macroeconomic Scenario 5

Italian Real Estate Market 8

Legal and regulatory framework update 12

Italian NPL Market 16

Italian Banks overview 20

Focus on UTP Italian Market 27

The Servicing Market 34

Regulatory changes 44

Recent market activity and outlook 46

on erorin xposures lassiation 49

Appendix 51

* “Guidance to banks on non-performing loans (March 2017)” by ECB, par. 1.2, pag.6 “Scope of this Guidance”and par. 5.1, pag. 47 “Purpose and Overview”

4 | The Italian NLP market - The Place To Be Macroeconomic Scenario

Key Message: in 2017 the domestic demand is expected to raise contributing to the economic growth. Other factors are the supportive monetary policy, which produces a low interest rate environment, and the decrease of the unemployment rate. nation is pct to cli an tn to slitl reduce, while investments are set to increase.

PwC | 5 Despite several concerns about growth Chart 1: EU main economic drivers 14 in emerging markets, exceptionally weak world trade, terrorist attacks 12 2016 2017F 2018F and the UK’s vote to leave the European Union, the European 10 economy is expected to continue 8.5 8.1 growing in 2017 and 2018, driven 8 7.8 mainly by domestic demand. -4 6 GDP in Italy is predicted to be 0.9% in 2017 and 1.1% in 2018, supported 4 by a low interest rate environment 1.9 2.1 2 1.8 1.8 1.8 1.7 1.9 1.9 and a stronger external demand, 0.3 while structural weaknesses hinder 0 a stronger recovery. Moreover, the overall private consumption is set to benefit from further, although slower, -2 -1.9 -1.7 -1.6 employment creation. However, GDP (%) Inflation (%) Unemployment rate Current Account Budget Balance some issues related to the political (% total labour force) (% GDP) (% GDP) uncertainty and the slow adjustment of the banking sector are likely to Source: PwC analysis on European Economic Forecast Winter 2017. Unemployment rate as a % of total labour compromise the growth prospects. force, current account balance and budget balance as a % of GDP.

Overall, GDP growth is forecasted to stand at 1.8% in 2017 and 2018 in the Euro area, mainly driven by a supportive monetary policy and Chart 2: Italian main economic drivers acceleration in global demand. 14 11.7 Inflation is flat at 1.8% in 2017 in the 12 11.6 11.4 2016 2017F 2018F Euro area thanks to the depreciation 2015 2016F 2017F of the euro against the US currency 10 and the rising in the prices of global 9.5 9.0 input. However, this effect will fade 8 8.7 in 2018, when the forecasted inflation -4 is set to reduce to 1.7%. Inflation in 6 -4 Italy is set to climb to 1.4% in 2017, dragged down by the rise in energy 4 2.7 prices, and stabilize at 1.3% in 2018. 2.1 2 1.4 1.8 0.1.9 90.1.9 91.21.0 1.3 2.1 2.1 2.0 1.6 Unemployment rate in Italy is set to 0 0.5 reduce thanks to past reforms such -0.0.1 0 as the permanent reduction of labor taxation. The rate is forecasted to -2 -2.3 -2.4-2.6 stand at above 11.6% in 2017 and -1.8 GDP (%) Inflation (%) Unemployment rate Current Account Bud-2g.5et -Balance2.2 11.4% in 2018, well above the average (% total labour force) (% GDP) (% GDP) GDP (%) Inflation Unemployment rate Current Account Budget Balance European level. (% total labour force) (% GDP) (% GDP) Source: PwC analysis on European Economic Forecast Winter 2017. Unemployment rate as a % of total labour force, current account balance and budget balance as a % of GDP.

11.9 2015 2016F 2017F 11.4 11.3

6 | The Italian NLP market - The Place To Be

-4

2.2 2.1 2.1 1.0 1.1 0.6 0.9 0.2 0.1

-1.5 -2.6 -2.5 GDP (%) Inflation Unemployment rate Current Account Budget Balance (% total labour force) (% GDP) (% GDP) Current account surplus in Italy is Chart 3: Total investments volume trend foreseen to be 2.1% in 2017, above the average for the European member % change states (1.9%), and 1.8% in 2018, slightly below the European average. (1.9%). 3.6 2.3 2.99 3.1

Investment is set to increase by 2.6 2.4 3.13 1.919 2.4% in 2017 and 3.1% in 2018, as it 1.3 benefits from measures in the 2017 -1.5 budget and from the Investment Plan -3.0 for Europe, gradually shrinking the gap with European levels. -6.6

Forecast suggest that the Government 2013 2014 2015 2016 2017F 2018F gross debt ratio is expected to slightly reduce both in Italy and in EU EU Italy in the next years. Source: PwC analysis on European Economic Forecast Winter 2017.

Table 1: Government gross debt ratio per country

Government 2013 2014 2015 2016 2017F 2018F Trend gross debt 2017-2018F ratio (% GDP)

Italy 129 131.9 132.3 132.8 133.3 133.2 EU 91.3 93.4 92.6 91.5 90.4 89.2 Spain 95.4 100.4 99.8 99.7 100.0 99.7 France 92.3 95.3 96.2 96.4 96.7 97.0 UK 86.2 88.1 89.0 88.6 88.1 87.0 Germany 77.5 74.9 71.2 68.2 65.5 62.9

Source: PwC analysis on European Economic Forecast Winter 2017.

PwC | 7 Italian Real Estate Market

Key Message: In 2016, the Italian Real Estate market registered a 18.4% growth compared to 2015, mainly driven by transactions related to residential assets. Rome and Milan continue to be the main city markets, representing ca 44% of total transactions. Investments in Real Estate rac n in it offics continin to represent the major asset class for investment.

8 | The Italian NLP market - The Place To Be Volume of Real Estate The most significant percentage During 2016, non residential asset transactions in 2016 growth, compared to the previous classes showed double digit increases, year, was recorded in the industrial accounting for growth of 19.2% In 2016, the Italian real estate building sector, a 22.1% increase. See compared to 2015. While continuing market has been continuing on Table 2. to account for a small proportion of its positive trend, driven mainly the total, the office segment is the by sales of residential properties Residential sales in 2016 have sector registering the highest growth and appurtenances (which include increased throughout each region of rate, at 24.1%. See Table 4. garages, basements and parking Italy with respect to 2015. The North spots). It hasn’t happened since 2011 showed the greatest positive results, that the yearly real estate transactions with a 22.3% increase over 2016, exceeded million unities (1,141,012 which was followed by the South and NTN in 2016). Centre with 16.2% and 14.6% growth, respectively. See Table 3.

Table 2: Italian NTN1 comparison by sector

Q1 Q2 Q3 Q4 H1 H2 Delta (%) Asset type Total 2016 Total 2015 2016 2016 2016 2016 2015 2015 15-16

Residential 115,194 143,298 123,476 146,896 528,864 211,968 232,657 444,625 18.9% fice 2,025 2,413 2,510 3,000 9,948 4,097 4,744 8,841 12.5% Retail 6,776 7,598 7,188 9,024 30,586 12,634 13,594 26,228 16.6% Industrial 2,121 2,897 2,565 3,704 11,287 4,230 5,012 9,242 22.1% Appurtenances2 87,554 110,015 94,007 119,427 411,003 163,887 181,003 344,890 19.2% Other3 30,828 38,687 35,719 44,090 149,324 61,746 68,363 130,109 14.8%

Total 244,498 304,908 265,465 326,141 1,141,012 458,562 505,373 963,935 18.4%

Source: PwC publication “Real Estate Market Overview – Italy 2017” 1. NTN is the number of standardized real estate units sold, taking into account the share of the property transferred 2. Appurtenances comprehend properties such as basements, garages or parking spots he ector ther incle hoital clinic arrac telehone echane an fire tation

PwC | 9 Table 3: Residential NTN by geographic area

Delta (%) Delta (%) H1 Delta (%) H2 Area Region Year 2016 H1 2016 H2 2016 15-16 15-16 15-16 Provinces 89,901 44,762 45,131 23.7% 27.8% 20.0% North No Provinces 192,015 91,888 100,111 21.7% 22.9% 20.4% Total 281,916 136,650 145,242 22.3% 24.5% 20.3% Provinces 51,577 25,414 26,148 13.5% 17.7% 9.7% Center No Provinces 58,159 28,286 29,855 18.6% 21.7% 15.8% Total 109,736 53,700 56,003 16.2% 19.8% 12.9% Provinces 38,921 19,713 19,198 14.7% 19.8% 9.9% South No Provinces 98,292 48,317 49,930 14.6% 18.1% 11.4% Total 137,213 68,030 69,128 14.6% 18.6% 10.9% Provinces 180,400 89,888 90,476 18.7% 23.0% 14.6% Italy No Provinces 348,465 168,491 179,896 19.1% 21.3% 17.0% Total 528,865 258,379 270,372 18.9% 21.9% 16.2%

Source: PwC publication “Real Estate Market Overview – Italy 2017”

Table 4: Non residential NTN by geographic area

Delta (%) NTN 2016 Office Q1 2016 Q2 2016 Q3 2016 Q4 2016 2016 2015 15-16 North 1,186 1,413 1,579 1,918 6,096 4,733 28.8% Center 417 505 488 559 1,969 1,650 19.3% South 422 494 442 523 1,881 1,632 15.3% 24.1%

"Delta (%) NTN 2016 Retail Q1 2016 Q2 2016 Q3 2016 Q4 2016 2016 2015 15-16" North 3,309 3,619 3,633 4,442 15,003 12,753 17.6% Center 1,451 1,700 1,620 2,051 6,822 5,996 13.8% South 2,016 2,279 1,953 2,531 8,779 7,478 17.4% 16.7%

Delta (%) NTN 2016 Industrial Q1 2016 Q2 2016 Q3 2016 Q4 2016 2016 2015 15-16 North 1,396 1,867 1,710 2,371 7,344 6,258 17.4% Center 361 430 449 628 1,868 1,561 19.7% South 361 600 406 706 2,073 1,423 45.7% 22.1%

Source: PwC publication “Real Estate Market Overview – Italy 2017”

10 | The Italian NLP market - The Place To Be Investments in the non Chart 4: Investments in the non residential Real Estate industry - Investor type residential Real Estate market 9,100 8,100 In 2016, the Italian commercial real 7,728 estate market recorded a transaction100 17% volume of € 9.1 billion, up circa 12% 27% 26% from 2015, confirming the increasing80 5,130 5,221 investor confidence and demand for 60% 67% Italian real estate. The investment 4,383 73% recovery has started in 2013 reaching60 74% 78% the highest point in 2016, that has 70% proven to be the second best year for40 73% 83% Italian real estate investment after the record level of € 10 billion in 2007. 40% Investments in the non residential 20 33% 1,744 30% 27% Real Estate industry in Q1 2017 413 22% amounted to €1.9bn, about 12% 0 higher than Q1 2016. 2010 2011 2012 2013 2014 2015 2016 Q1 2017

The strong growth was driven by ca Italian investors Foreign investors Total investments (€ mln) 23% increase in the Office sector, Source: PwC publication “Real Estate Market Overview – Italy 2017 which continues to represent the * Q1 2017 value is normalized lion’s share of the investments, with ca 44% of the total volumes Chart 5: Investments in the non residential Real Estate industry - Asset type of transactions. The Retail sector 8,100 registered an increase by 58% over the same period. Industrial estates 100 5% 12% 17% (+270%) is growing fast, but the lack 27% 26% of supply across the country obliges 80 5,221 the investors to widen their areas of 7% 5,130 68% interest and to concentrate on value 2016204,38316 Offices 73% added operations. 60 €9,100€9,100 mlmlnn 44% 7% 74% 78% 70% Retail Rome and Milan still represent 40 73% 83% key markets for investments, 3,378 Industrial accounting for 34% and 17% of the 25% total investment volume in 2016, 32% 20 1,744 30% Tourist 27% respectively. However, some investors 413 11% 22% have adapted their strategies to 0 the dynamic market and started to 2010 2011 2012 2013 Mixed2014 2015 Q1 2016 consider secondary locations as well. 12% Italian investors Foreign investors Total investments (€ mln) Q1 2017 Other* 5% €7,728 mln 49%

23%

Source: PwC publication “Real Estate Market Overview – Italy 2017” *”Other” includes banks, public administration and sovereign funds * Q1 2017 value is normalized

PwC | 11 Legal and regulatory

NPL Guidelines: On 20th March 2017, the ECB framework rlas t final ilins for t ans on non-performing loans. The guidelines concern some crucial aspects for the resolution of NPL update issues and are considered applicable from the moment of their publication

12 | The Italian NLP market - The Place To Be The ECB guidelines on NPLs come to “disrupt” the “banking scenery”

Even though the ECB guidelines constitute a • Highlight the importance it has to be given to the recommendation for all credit institutions, they are forbearance measures granted in order to avoid a generally addressed to all significant institutions (SIs) misrepresentation of the quality of the loan positions under the SSM and specifically to banks with a high level of NPL (especially for strategy and governance issues). • Provide guidance to banks aimed at establishing a clear strategy and operational plan in order to reduce its consistencies in a credible, feasible and timely manner

Banks with a gross NPL ratio above 7% are • Prepare banks to confront future challenges by considered “High NPL banks”. encouraging them to take into consideration the competitive landscape as well as the external operating A bank can also be considered as high NPL in case of: environment

• High level of NPL inflows

• High level of forbearance and foreclosed assets th • Low levels of provision coverage 12 September 2016 • High texas ratio Commencement of public consultation concerning the Given the significance of the guidelines, it is highly advised guidelines on non-performing loans (NPL) 7th November 2016 for all institutions to adopt the most critical aspects of these best practices, taking into consideration the principle Public auditioning with senior representatives of of proportionality. the ECB to provide clarifications as part of the consultation 15th November 2016 End of public consultation on the NPL guidelines SSM supervisory priorities for 2017 include: 1st March 2017 First complete draft of the • Business models and profitability drivers NPL guidelines send to • Credit risk with an NPL and concentration focus ECB Governing Council in • Risk management order to proceed with its adoption

The significance of these guidelines is in particular related to the fact that they: 8th March 2017 • May result in additional supervisory measures in Adoption of the document by the ECB case of any possible non compliance (in absence of Governing Council reasonable justification) 20th March 2017 • Have been drafted taking into consideration Publication of the comments and queries arising from a diverse range official final guidelines of directly affected parties such as financial and credit as well as the feedback on institutions, market and banking associations during the comments received the consultation process during consultation

PwC | 13 The “disruptive” nature of the Guidelines 1/2

From evidence on the Italian banking sector it can be Strategy Organisational derived that the guidelines have already had and are going • Integration Structure to have a significant impact on the way banks manage their • Medium to long term • Specialisation non performing positions not only on the short term but planning • Coordination also with regard to the medium to long term. • Valuation of • Independence available options When verifying a bank’s current business model with its conformity to the main ECB indications the main impacts are on the strategy, the organisational structure, the operational model and the data management of a bank. Operating Model Data Strategy • Automatization • Univocal database • Monitoring • Data Quality • Strategic management • Data Availability Integration options of the For an NPL strategy to be successful, a centralised portfolios management of the strategy across the various NPL Units is required along with the integration of the policies and procedures in place, to set common grounds that are Organisational Structure communicated and adopted throughout the bank. Specialisation Medium to long term planning The bank needs to establish specialised NPL dedicated The NPL strategy that a bank adopts should contain Unit(s) for an effective management of the NPLs, distinct objectives that aim at reducing its NPL levels not only from the commercial Units. The NPL dedicated Unit(s) short term but also in the medium (3 years) term. These need to be supported by an articulate approach for an objectives are to be part of a realistic operating plan adequate segmentation of the portfolios per type of debtor. reinforced by incentives given to the dedicated Units in connection to the reduction of the NPLs. When planning Coordination the NPL strategy a key element for banks is to analyse and An important aspect is for the different functions involved project the capital implications that such a strategy may in the NPL process to have a clear view and distinct have. boundaries of their role and responsibilities in relation to the other functions, establishing a regular communication Valuation of available options as a common practice. Moreover, specific criteria need Both the external (macroeconomic environment, to be set for the correct classification and passage of the investors…) and internal (resources, processes, positions within the different dedicated Units. composition of portfolio…) operating environment play a vital role in valuating the possible strategic options Independence (impairment, sale, write offs, appropriation of guarantees, The NPL dedicated Unit(s) need to be independent from legal options, securitisation, etc.) that a bank will follow. the Units responsible to the granting of credit. Taking Given the rapid pace and the constant developments always into account the concept of proportionality, of the sector, the possible strategic options need to be the people involved in managing NPL loans should not regularly reviewed and updated taking into consideration be involved in the day to day activities related to the the positioning of the bank in the market and the general management of performing loans and credit granting. market evidence.

14 | The Italian NLP market - The Place To Be The “disruptive” nature of the Guidelines 2/2

The main objective is to allow debtors to exit their non- performing status and/or prevent their deterioration. Strategy Organisational • Integration Structure • Medium to long term • Specialisation Forbearance: banks before granting forbearance measures planning • Coordination should apply a «decision tree» allowing to take into • Valuation of • Independence consideration and value the implications of granting other available options possible options as well. Forbearance measures should be closely monitored and clear criteria should be established for exiting a forborne status

UTP: «Tailor made» solutions aimed at a proactive Operating Model Data management as well as implementation of standard • Automatization • Univocal database procedures for the appropriate classification and • Monitoring • Data Quality segmentation • Strategic management • Data Availability options of the portfolios Operating Model

Automatization Data Given the complexity and size of data processed, a bank needs to ensure that its operating model is supported by Univocal database adequate automated systems and processes. Simulations, The challenge for the banks lays in creating a unique where appropriate, should be run allowing to plan taking database containing all the relevant information of the into considerations future scenarios. portfolios, updated at a frequent basis. Such a database should be enriched by all the relevant Units and should be Monitoring able to allow an adequate level of historical information A continuous monitoring both at a debtor and at a and contain all the information for allowing a focused and portfolio level is crucial. Such monitoring can have a direct granular management of the portfolio. consequence on the NPL strategy as the resulting evidences can alter the underlying hypothesis of the NPL strategy. Data Quality For an effective monitoring of the adequacy of the Fundamental for the proper utilisation of the univocal operating model in place key performance indicators database is the quality of the data that is enriched with. (KPIs) play a vital role. The KPIs not only allow for the A critical point of the process is the moment that the bank to position itself in the market but also to measure database is created ensuring the consistency of the data the progress made on NPL recoveries (either internal or inputs across the various databases and Units of the bank. external through oursourcers). Data Availability Early warning indicators (EWIs) can anticipate the Readily available data, updated at frequent intervals is evolution of the loan position, becoming an integral part of fundamental for the effective management of the bank’s the NPL recovery guidelines and policies NPLs.

Strategic management of the positions Both KPIs and EWIs are an integral part in the formulation of the course of action adopted for the bank’s NPL. Extraordinary operations, outsourcing, real estate vehicles as well as automatic write-offs should be all be considered when deciding on the strategic management of the single positions.

PwC | 15 Italian NPL Market

Key Message: The NPL volume in the Italian banking sector is the highest in the European market reaching the value of €324bn (GBV) at the end of 2016. After reaching the peak at the end of 2015, totaling € 341bn, the NPE volume princ a slit t fir clin rin (-5%). Within the NPL categories, the Unlikely to Pay volumes, still lower than Bad Loans in terms of GBV (€ 117 bn vs € 200 bn) are by now overcoming the Bad Loans in terms of NBV (€ 87bn)

16 | The Italian NLP market - The Place To Be Asset Quality

As shown in Chart 6, after reaching its maximum at Chart 7 indicates that net Bad Loans registered a €2bn YE-2015 (€341bn), total NPE stock has finally registered a reduction from YE-2015 due to the Bad Loans’ coverage reduction at YE-2016, to €324bn. ratio reached 56.5% growing of almost 1% from YE-2015.

Gross Bad Loans, which account for €200bn of total gross NPL were at the same level as YE-2015. On the other side, Unlikely to Pay and Past Due are considerably declining reaching €117bn (from €127bn at YE-2015) and €7bn (from €14bn at YE-2015) at YE-2016.

Chart 6: Gross NPE and Bad Loans trend

CAGR: -5%

Gross NPL / Loans to Customers (%)

Gross Bad Loans / Loans to Customers (%) 341 324 Bad Loans (€ bn) 326

Unlikely to Pay (€ bn) 12 14 CAGR: +22% 283 7 Past Due (€ bn) 237 18 131 127 117 194 21 109 157 13 91 132 12 74

85 16 200 66 184 200 9 57 156 107 125 33 78 59 42

2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: PwC analysis data of Bollettino Statistico di Banca d’Italia and ABI Monthly Outlook 4.9% 7.8% 9.3% 11.3% 14.3% 17.8% 21.0% 22.0% 21.1% 2.5% 3.5% 4.6% 6.3% 7.5% 9.8% 11.8% 12.9% 13.0%

Chart 7: Net Bad Loans Trend

56.5% 55.6% 54.0% 50.3% 48.7% 42.9% 43.7% 39.7% 34.0%

84 89 80 87 62 47 60 24 39 5.7% 3.8% 5.0% 5.4% 5.6% Net Bad Loans (€ bn) 2.3% 2.8% 3.5% 1.4% Net Bad Loans/Loans to Customers (%) Bad Loans coverage ratio (%) 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: PwC analysis data of ABI Monthly Outlook PwC | 17 Looking at the Bad Loans stock Chart 8a: Breakdown of Gross Bad Loans by region* (YE-2016) composition: 1.6% • “Corporate & SME” continue to 21.4% represent the greatest share of 1.7% gross Bad Loans reaching 73% at YE-2016; 5.9% 9.9% • the Lombardy (21.4%) and Lazio (11.6%) regions have the highest 9.5% concentration of stock; 1.9% 8.5% 3.5% • at the same time Lombardy and Lazio has respectively 12.1% and 1.8% 2.4% 14.5% of Gross Bad Loans ratio; • the South of Italy has the highest 2.1% 11.6% percentage of Gross Bad Loans 4.9% ratio; 6.1% • Trentino Alto Adige, Friuli Venezia Giulia, Liguria, Umbria, Marche, >10% Calabria and Sardegna has a >5-10% percentage of gross Bad Loans 5.5% 1.7% >3-5% lower than 3%; <3% • the percentage of secured Bad Loans is increasing from 36% in 2008 to 48% at YE-2016. Source: PwC analysis on data of “Bollettino Statistico” of Bank of Italy

Chart 8b: Breakdown of Gross Bad Loans Ratio by region* (YE-2016)

8.0% 12.1%

11.9% 11.9% 14.3% 13.9% 11.5% 16.2% 18.1%

17.8% 18.1%

18.6% 14.5% 16.6% 17.2%

>18% >16-18% 19.1% 20.2% >14-16% <14%

Source: PwC analysis on data of “Bollettino Statistico” of Bank of Italy * Unified percentage for 1) Valle d’Aosta and Piemonte, 2) Abruzzo and Molise, 3) Puglia and Basilicata

18 | The Italian NLP market - The Place To Be Chart 9: Breakdown of Gross Bad Loans by counterparty (YE - 2016)

1% 1% 1% 1% 1% 1% 2% 2% 2%

20% 20% 20% 20% 19% 18% 16% 16% 17% 8% 8% 7% 12% 11% 10% 9% 9% 8%

67% 69% 70% 70% 71% 73% 75% 74% 73%

2008 2009 2010 2011 2012 2013 2014 2015 2016

Corporate & SME Small family business Individual Other**

Source: PwC analysis on data of “Bollettino Statistico” of Bank of Italy ** “Other” includes PA and financial institutions

Chart 10: Secured Gross Bad loans trend (% on total Bad loans)

Counterparty Corporate & SME 48% 47% 68% 45% 42% Individual 39% 22% 38% 38% Family business 8% 36% 36% Other** 2%

2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: PwC analysis on data of “Bollettino Statistico” of Bank of Italy ** “Other” includes PA and financial institutions

PwC | 19 Italian Banks Overview

Key Message: Banks continue to reduce the volume of NPL on their balance sheets, on one hand, through the restructuring process in place concerning Italian ailing banks and on the other hand, through the implementation of NPL deleverage plans carried on by major Italian banks.

20 | The Italian NLP market - The Place To Be Recent Events

• Early this year, UCI completed the sale of €17.7bn euros acquired the regional bank CariFerrara, following their bad loan portfolio to two separated securitization rescue in 2015 by Italian Authorities and the sale of their vehicles built, respectively, by Fortress Investment Group NPL to the bad bank “REV”(€10,3bn) in 2015 and to and Pimco, with the seller retaining a minority stake in Atlante Fund (€2,2bn) in 2017. each vehicle. • MPS will dispose of its entire NPL portfolio, with a GBV • In the meantime, ISP has closed the largest Italian of ca €29.4bn at the end 2016. The Board of Directors of NPL deal not involving a securitization this year, with MPS resolved to grant exclusive NPL securitisation talks Christofferson, Robb & Co. and Bayview buyers of ca to Quaestio Capital Management, on behalf of Atlante II. €2.5bn (Project Beyond the Clouds). • On 25 June 2017, the Italian Government enacted the • Algebris Investments reached an agreement to buy Decree n.98 stating the acquisition of certain asset €750m from Banco BPM (Project Rainbow). (excluding NPE) and liabilities of Banca Popolare di Vicenza and Veneto Banca by Intesa Sanpaolo as well • In May 2017 UBI acquired three regional lenders as the liquiditation of their NPL (€ 16.8bn at the end of (Banca Marche, BPEL and CariChieti) and BPER 2016) through the public Bad Bank “SGA”.

Chart 11: Net Bad Loans and Equity for the Top 10 Italian Banks 161%

89%

66% 60% 56% 13.6 Net Bad Loans Equity Ratio (%) 14.9 35% 44% 10.4 24%

57 7.8 30% 14% 78 4.0 Veneto Banca 1.4 82% 59 3.2 3.0 3.5 1.2 0.3 Popolare di Vicenza 2.0 94%

UCG ISP MPS UBI BNL BPER Cariparma Credem Banco Veneto Banca BPM + Pop Vicenza Source: Financial Statements as of YE-2016. Data affected by different write-off policies. Chart 12: Gross NPE and Texas ratio for the Top 10 Italian Banks

149% 137% 160% 77.1 118% 111% 106% 103% Gross NPE (€ bn) 96% 58.4 Texas Ratio (%) 45.8 91%

59%

78 26.0 Veneto Banca 7.0 59 12.5 13.1 11.2 16.8 5.0 1.4 Popolare di Vicenza 9.8 UCG ISP MPS UBI BNL BPER Cariparma Credem Banco Veneto Banca BPM + Pop Vicenza Source: Financial Statements as of YE-2016. Data affected by different write-off policies. ea ratio efine a the ratio eteen total ro an the o an roiion PwC | 21 Chart 13: Recoveries/Gross Bad Loans for the Top 10 Italian Banks

Veneto 6.0% 0.08 Banca 3.0% 5.5% Popolare 0.13 di Vicenza 3.1% 4.0% 3.9% 3.8% 3.5% 3.4% 3.4% 3.21 3.1%3.1% 2.6%

1.55

00.21.21 0.68 0.04 0.53 0.39 0.28 0.24 0.09 UCG ISP MPS UBI BNL BPER Cariparma Credem Banco Veneto Banca + BPM Pop. Vicenza Recoveries (€ bn) Recoveries/Gross Bad Loans (%)

Source: Financial Statements as of YE-2016. Data affected by different write-off policies

Chart 14: Sales Proceeds/(Sales Proceeds + Losses on disposals) for the Top 10 Italian Banks

Banco BPM Veneto 0.00 100.0% Banca 0.20 0.0% Popolare 83.1% 0.01 di Vicenza 5.3% 69.3% 74.6% 79.0% 0.59 54.3% 54.1% 43.8% 0.77 0.11 22.1% 5.3% 0.15 0.26 0.02 0.02 0.01 0.02 0.00 0.05 0.01 0.03 0.03 0.17 0.02 0.02 0.02 0.12 0.00

UCG ISP MPS UBI BNL BPER Cariparma Credem Banco BPM Pop. Vicenza Sales Proceeds (€bn) Losses on disposals (€bn) Sales Proceeds/Sales Proceeds + Losses on disposals (%)

Source: Financial Statements as of YE-2016. Data affected by different write-off policies

Chart 15: (Sales Proceeds + Losses on disposals + Recoveries)/Gross Bad Loans for the Top 10 Italian Banks

Veneto 0.08 Banca 3.0% 14.1% Popolare 0.14 di Vicenza 3.3%

7.9% 6.2% 4.9% 5.7% 5.8% 3.9% 4.9% 3.2% 4.19 2.8% 1.93 0.32 1.00 0.79 0.22 0.75 0.44 0.14 0.05 UCG ISP MPS UBI BNL BPER Cariparma Credem Banco Veneto Banca + BPM Pop. Vicenza Sales Proceeds + Losses on disposals + Recoveries (€ bn) (Sales Proceeds + Losses on disposals + Recoveries)/Gross Bad Loans (%)

Source: Financial Statements as of YE-2016. Data affected by different write-off policies

22 | The Italian NLP market - The Place To Be Chart 16 provides a snapshot of the Chart 16: Top 10 Italian Banks – NPL Peer Analysis as of YE-2016 Top 10 Italian banks’ positioning considering the gross NPL ratio, with Gross NPE Ratio (%) an average of 19.8%, and the coverage UCG ratio, with an average of 47.1%.Is clear 70

that there is a strong variance among ) Italian banks analyzed; in fact, there BNL 60 MPS is a huge gap in terms of gross NPL AvA erage= 47.1% ratio: Veneto Banca with Popolare ISP di Vicenza reaches the highest point BPER (36.9%) while Credem shows the 50 rage Ratio (% lower extreme (5.8%).On the other Credem ve hand, considering the NPL coverage Veneto Banca + 40 Cariparma ratio, UGC reaches the peak of 62.8% Pop Vicenza while UBI stands at 35.7%. However, NPE Co Banco BPM we note that the coverage ratio is not UBI irctl coparal as it is innc 30 by several factors which vary among the different banks (such as policies on Average= 19.8% write-offs, level of collateralization of 20 the loans, vintage of the portfolio). 0510 15 20 25 30 35 40

NPE Gross Bubble size: Gross NPE Gross NPE Bank Coverage NPE Ratio (%) Radio (%) (€bn)

eneto anca 38.5% 43.4% 6,967 Chart 17 illustrates the Bad Loans o icena 35.8% 47.3% 9,800 ratio and coverage ratio for the banks analyzed. Also in this case there are Source: Financial statements as of YE-2016. Data affected by different write-off policies sinificant iffrncs coparin t banks. MPS shows the highest ratio Chart 17: Top 10 Italian Banks – Bad Loans Peer Analysis as of YE-2016 for the gross Bad Loans with 22.1% where the average is 11.9% (Credem Gross Bad Loans Ratio (%) is the last one in this special rank with 3.5%). Considering the bad loans 80 UCG coverage ratio, which average is equal to 58.8%, at the maximum extreme 75 there is still MPS with 64.8%, while at 70 MPS the minimum UBI with 45.1%. ISP BNL 65 Average= 58.8% BPER rage Ratio (%) 60 Credem ve

55 Cariparma Veneto Banca + Pop Vicenza 50 UBI

45 Bad Loans Co Banco BPMP 40 Average= 11.9% 35 0510 15 20 25

Bubble size: Gross Bad Loans Gross Bad Bad Loans Gross Bad Bank Loans Coverage Loans Ratio (%) Radio (%) (€bn)

eneto anca 18.3% 56.7% 3.313 o icena 18.7% 60.5% 5.116

Source: Financial statements as of YE-2016. Data affected by different write-off policies

PwC | 23 Chart 18 provides an image of the Chart 18: Top 10 Italian Banks – Unlikely to Pay Peer Analysis as of YE-2016 gross Unlikely to Pay ratio and its Coverage ratio. Veneto Banca with Bubble size: Gross Unlikely to Pay Gross Unlikely to Pay Ratio (%) Popolare di Vicenza shows the highest 48 ratio with 17.9%. At the same time the lowest is Credem with 2.1% (average UCG MPS 7.6%). The situation is different 43 when comparing the Coverage ratio: UGC is at 43.1% and at the 38 Veneto Banca + bottom of these banks Credem is at Pop Vicenza 15.6% (average 29%). Comparison BNL among banks needs to consider the 33 ISP underlying type of borrower and Average= 29.0% credit concern, probability of default 28 estimate and rating of the borrower Banco BPM as well as criteria / policy used to BPER grant a restructuring and the type of 23 restructuring. UBI Cariparma Ratio (%) Coverage Pay to Unlikely 18 Credem Average= 7.6% 13 0 5 10 15 20

Gross Unlikely to Gross Unlikely Bank Unlikely to Pay Cov. to Pay (€bn) Pay Ratio (%) Radio (%)

eneto anca 19.6% 31.7% 3,542 o icena 16.8% 33.3% 4,603

Source: Financial statements as of YE-2016. Data affected by different write-off policies

Chart 19 illustrates the Past Due Chart 19: Top 10 Italian Banks – Past Due Peer Analysis as of YE-2016 ratio and the coverage for the banks anal ara for t first of Bubble size: Gross Past Due Gross Past Due Ratio (%) them is 0.3% and for the second 17.2%. 40 The Past Due Coverage ratio shows a gap from UCG with 32.9% to UBI with 35 5.7%.Differently from all the other UCG cases, small variance exists among the banks, with the exception of MPS 30 MPS which records the highest gross Past ISP Due Ratio (0.8%). 25

20 BNL Veneto Banca + Pop Vicenza Average= 17.2% Banco 15 Credem Popolare + Gross Past Due Gross BPM Bank Past Due Cov. Past Due Ratio (%) Radio (%) (€bn) 10 Cariparma eneto BPER 0.6% 16.0% 112 Ratio (%) Due Coverage Past Banca 5 Pop UBI 0.3% 16.2% 80 icena Average= 0.3% 0 0,0 0,2 0,4 0,6 0,8 1,0

Source: Financial statements as of YE-2016. Data affected by different write-off policies

24 | The Italian NLP market - The Place To Be Chart 20 shows that, compared to Chart 20: Top Italian Banks – Bad Loans movements (YE-2015 vs YE-2016) YE-2015, the YE-2016 snapshot Gross Bad loans Ratio (%) indicates that UCG (+20,2%), UBI 75 (+16,7%), Banco Popolare + BPM UCG (+8,4%) and Veneto Banca + Pop 70 Vicenza (9,7%) have substantially BNL MPS increased their Bad Loans coverage 65 64.6% Average= 58.8% level whereas Veneto Banca + Pop ISP Vicenza (+40,4%) and MPS (+12,1%) 60 BPER have both worsened their gross Bad Veneto Banca + Loans ratio compared to YE-2015. Credem 55 Pop Vicenza Slight or no material changes have Cariparma been recorded for other banks. 50

UBI YE 2015 YE 2016 Ratio (%) Bad loans Coverage 45 Banco Popolare + BPM 40

Average= 11.9% 35 0 5 10 15 20 25

Gross Bad Bad loans Gross Bad Bad loans Bank Loans Cov. Ratio Bank Loans Cov. Ratio Ratio (%) (%) Ratio (%) (%)

eneto anca 11.9% 53.4% YE eneto anca 18.3% 56.7% YE o icena 14.2% 54.0% 2015 o icena 18.7% 60.5% 2016

Source: Financial Statements as of YE-2015 (Rose), YE-2016 (Burgundy). Data affected by different write-off policies

Chart 21 illustrates the movements Chart 21: Top Italian Banks – Unlikely to Pay movements (YE-2015 vs YE-2016) in the Unlikely to Pay NPL ratio and the Unlikely to Pay Coverage ratio Gross Unlikely to Pay Ratio (%) between 2015 and 2016. Veneto Banca 45 UCG and Popolare Vicenza shows the MPS highest value of the Unlikely to Pay Veneto Ratio in 2016 (17.9%), while UCG has Banco Banca + the highest Unlikely to Pay Coverage Popolare + Pop Vicenza ratio (43.1%) in the same period. The 30 BPM ISP average net change between 2015 and rage Ratio (%)

Average= 29.0% ve 2016 in the Unlikely to Pay NPL Ratio UBI is -3.4% and +17.5% in the Unlikely BPER y Co

to Pay Coverage ratio. The average Cariparma Pa

15 to Unlikely to Pay NPL Ratio stands at Credem 7.6% in 2016, while the Unlikely to Pay Coverage ratio is 29.0% in the same likely period. Un Average= 7.6% YE 2015 YE 2016 0 024681012141618

Unlikely to Unlikely to Unlikely to Unlikely to Bank Pay NPL Pay Cov. Bank Pay NPL Pay Cov. Ratio (%) Ratio (%) Ratio (%) Ratio (%)

eneto anca 12.1% 22.7% YE eneto anca 19.6% 31.7% YE o icena 15.3% 25.8% 2015 o icena 16.8% 33.3% 2016

Source: Financial Statements as of YE-2015 (Rose), YE-2016 (Burgundy). Data affected by different write-off policies

PwC | 25 Chart 22 shows the movements in the Chart 22: Top Italian Banks – Past Due movements (YE-2015 vs YE-2016) Past Due ratio and Past Due Coverage ratio. It is easy to note a strong Past Due Ratio (%) reduction in the Past Due ratio (change 30 UCG of – 50.6%) between 2015 and 2016, while the Past Due Coverage ratio incras sinificantl can in the same period. The average Past MPS Due Ratio in 2016 is 0.3%, halved ISP compared to the previous year value, Banco BNL Average= 17.2% while the Past Due Coverage ratio for Pop + the same year stands at 17.2%. In 2016, 15 BPM MPS shows the highest Past Due Ratio (0.8%), while UCG is the most solid Credem Veneto Banca + bank among those considered in terms Pop Vicenza of Past Due Coverage ratio (32.9%). Cariparma Ratio (%) Due Coverage Past BPER YE 2015 YE 2016 UBI Average= 0.3% 0 0 1 2 3 4

Past Due Past Due Past Due Past Due Bank Coverage Bank Coverage Ratio (%) Ratio (%) Ratio (%) Ratio (%)

eneto anca 1.8% 8.9% YE eneto anca 0.6% 16.0% YE o icena 0.5% 12.2% 2015 o icena 0.3% 16.2% 2016

Source: Financial Statements as of YE-2015 (Rose), YE-2016 (Burgundy). Data affected by different write-off policies

Chart 23 shows the relation between Chart 23 elation eteen areta an ratio the market cap of listed Italian Banks and their NPL ratios. 120

ISP 100

80 Credem PopSo

60 BPM Banco Popolare

BPER 40 UCG MarketCap / TBV % / TBV MarketCap UBI CreVal 20 Carige MPS

0 0 5 10 15 20 25 30 35 40 45

NPLs / Tot. loans (GBV) %

Source: Financial Statements as of YE-2016. Data affected by different write-off policies

26 | The Italian NLP market - The Place To Be Focus on UTP Italian market

Key Message: Unlikely to Pay exposures are the new challenge for the Italian banks within the NPL sector. At the end of 2016, the UTP volumes, still lower than Bad Loans in terms of GBV (€ 117 bn vs € 200 bn) are by now overcoming the Bad Loans in terms of NBV (€ 87bn). Only by a renovated proactive management of these exposures, t talian ans col fin t ost ffcti deleverage solutions to address the issue of their volumes.

PwC | 27 Our view

The volume of UTP, lower than bad loans in terms of GBV The proactive management of UTP should cover three main (€117bn vs €200bn) but by now overcoming the Bad Loans issues: (i) data quality and preliminary strategic portfolio in terms of NBV (€87bn), will require the adoption and segmentation, (ii) accurate analysis of the borrowers implementation of a renovated strategic management and and integrated single names’ management and (iii) deleverage approach by the Italian banks. implementation of the most appropriate strategic option to identify among forbearance measures, cash injection ECB guidelines provide a great opportunity to renovate (equity/ debt) even through third investors, loan sales and and improve the proactive management of NPE to address liquidation procedures. the issue of their massive stock. In other words, the proactive management of UTP is Moreover IFRS9, in place from 1 January 2018, will lead to without a doubt a complex issue entailing and requiring an «early warning» and «forward looking» approach, which due diligence, data quality, restructuring, turnaround could likely result in higher reclassification of performing management and M&A/special situation expertise. loans to NPE/UTP and overall higher provisions.

Only by focusing the efforts in the proactive management of their UTP exposures, the Italian banks could aim at deleveraging their UTP, through higher collection, higher cure rates to performing loans, lower danger rates to bad loans.

At the end 2016, the UTP exposure amounted to €117bn showing a declining trend vs YE2015 (-8%). 93% of the overall amount is concentrated within the Top 20 Banks

Chart 24: Unlikely to Pay distribution among Top 20 banks (FY16;€bn)

BPM 2.8 17% 100% 2% 4% vs. PY 20.2 117.0

Banco 8.7 3% Popolare 3% 8% 3% 3.5 -13% vs. PY 4% 4.0 15% vs. PY 4% 4.0 -15% vs. PY 4.4 -1% vs. PY 4% 4.6 25% vs. PY 10% 5.1 4% vs. PY 11.5 -17% vs. PY 13% -9% vs. PY 11. Credito Valtellinese 2.4 12. CA Cariparma 2.0 15.2 13. BP di Sondrio 1.9 -12% vs. PY 14. Iccrea 1.3 17% 15. BP di Bari 1.1 16. Banca IFIS 0.6 20.0 17. Banco di Desio 0.6 -13% vs. PY 18. CR Bolzano 0.6 19. CR di Ravenna 0.4 20. Banca Findomestic (**) 0.4 21% Others 8.3 24.5 -9% vs. PY

UniCredit Intesa MPS Banco UBI BPVI Veneto BPER BNL Carige Others GBV total Sanpaolo BPM Banca 31Dec2016

32% 34% 33% 44% 41% 47% 48% 36% 30% 48% Gross UTP/Gross NPE 15% 15% 34% 22% 14% 36% 39% 22% 19% 34% Gross NPE Ratio

Banco Popolare BPM 44% 44% 24% 17%

ole o anco ere calclate a o the fire o anco oolare an ere toether in anco ro anar anca inoetic eore a at ec eore a at n

28 | The Italian NLP market - The Place To Be Inflows and outflows

n total otos of t op talian ans slitl decreased from €51.1bn to €49.9bn primarily driven by lower otos to a loans in s in At the end of 2016, despite the decreased otos to a loans an inos fro inos in cras as ll fro n to performing (-5%) compared to 2015, 57% of n ainl to t lor inos fro prforin UTP remained as such. The UTP challenge lies exposures. (*) in the management of their massive stock. s for t otos t a a fir clin of inos from performing loans over the last 2-year period: 23% in 2015 vs 18% in 2016.

UTP which remained UTP during 2016 amounted to €61.8bn i.e. 57%, proving how the main issue for the Italian UTP lies mainly in their massive stock and a management not yet able to target deleveraging solutions.

In particular, according to Bank of Italy, 62.5% of the restructuring agreements (which qualify most of the UTP exposures) after 3 years are still in place (49% after 4 years) and did not result in a positive and conclusive outcome (i.e. after 4 years 40.9% of the restructuring agreements resulted in liquidation/bankruptcy procedures).

Chart 25 nliel to a ino an oto ro to o an n

Inflows Inflows Outflows 52.1 Outflows 41.5 (51.1) (49.9)

115.9 116.9 108.5

(5%) (5%) 10% 9% (13%) (12%) 13% 8%

(21%) (23%) (4%) 18% (4%) 23%

56% 57% Remain UTP Remain UTP

Exposure To Collected To bad loans Others From From non Other Exposure To Collected To bad loans Others From From non Other Exposure 31Dec14 performing performing performing inows 31Dec15 performing performing performing inows 31Dec16

In/Outflow % flows = Initial exposure

no an oto in or an anca inoetic ere etiate eal to the o occrre in to ate their financial tateent a at ec are not yet available)

PwC | 29 Performance Top 20 and total Italian Market

For the Top 20 Italian banks, the portions of UTP returned to performing slightly increased from 2014 (3.8%) to 2016 (3.9%). UTP collections and returns to performing increased from 2014 to 2016, even if the A similar trend for the cure rate was confirmed even for the Italian banking market (3.6% in 2014 v.s. 3.7% in 2015). firs ar still lo oll tro a proacti management of UTP, cure rates and collections For the Top 20 Italian banks, the collections of UTP could further arise. increased regurarly over the period 2014/2016 from 6.8% to 9.2%.

A similar trend is confirmed for the overall Italian banking sector.

Chart 26: UTP performance from 2014 to 2016 – collections and returns to performing

Exit to performing / collection % recovery = Initial exposure + Inflows 13.0% 12.5%

12.5% 10.6%

10.4% 9.2% 8.7% 8.7%

6.8% 6.8%

3.9% 3.8% 3.6% 3.7% 3.7%

2014 2015 2016 (*) Top 20 Market Top 20 Market Top 20

% To Performing Top 20 % Collected Top 20 % To Performing market

% Collected market Total Top 20 % Total market %

(*) Figures for 2016 do not include returns to performing and collections for ICCREA and Banca Findomestic

30 | The Italian NLP market - The Place To Be Our view about what banks should do for a proactive management of UTP

Carry on portfolio segmentations for (i) a better understanding of the asset quality of their UTP, ii a propr classification of t portfolio an 1 iii a prliinar intification of anant stratis rfor analsis on orrors financial statnts updated quarterly reports/ Business Plan, Budget and an frtr financial ocntation aot t orrors 2 prforanc an financial position

Regularly monitor the Central Credit Register to be informed on the total exposure to the system and relevant movements (overdraft withdrew or decrease, bad loan 3 classification

Use early warning indicators: from internal (companies 4 and individuals) and external sourcer.

Produce and regularly update an overall rating on borrowers’ overall risk based upon info gathered from 5 several sources.

Market risks Operational risks Financial risks (external variables such as (risks concerning the financial sonnss of t those regarding the operational structure of the borrowers and / or relevant environment where the borrowers) customers and / or suppliers) borrowers operate)

Implement improved NPE operating model: dedicated orot nits procrs for classification an segmentation, tailor made management strategies on a 6 single name basis.

UTP need to be moved out of their hybrid condition. Banks should carry on portfolio segmentation to better understand their UTP asset quality as well as implement a due diligence approach on a single name basis to identify the most effective and efficient deleverage strategy for their UTP. Different options might be available and vary case by case.

PwC | 31 Our view on the available strategies for UTP

stratic options intifi tro t on oin diligence carried out by the bank on the borrower’s case could result in the return of the loan in the performing Following the improved proactive cator or in t sal of t loan or in t classification management, banks could identify the most of the exposure as bad loans (thus requiring the prompt effective and efficient solutions to deleverage liquidation of the borrower’s asset through judicial their UTP (e.g. return to performing, procedures). collection) among several strategic options. Sale of UTP could be even executed through portfolios Solely a proactive management of UTP could transactions which require preliminary strategic lead to the right “tailor made” strategic segmentation to maximize loans’ value for the banks. solution.

Potential return to performing

Forbearance measures Loan sale • Grace period / Payment moratorium • True sale (full derecognition purposes) • Extension of maturity / term • Securitisation (to attract wider • Debt consolidation ing investors’ base) tur Lo • New credit facilities uc an • Partial loan transfer (to share risks and tr s s a • Recovery plan ex art 67 Italian re le opportunities with new investors) t Bankruptcy Law b e

• Debt restructuring ex art 182bis D • Italian Bankruptcy Law UTP proactive

N

I e management Liquidation procedures n w j s e Investor’s equity injection / e • Voluntary liquidation of collateral by c r in t u underwriting of senior debt i v the debtor (also foreseen within the o e d n s e • Industrial partner to revamp and t c forbearance measures) / o o s r’ r establish the underlying borrower’s e s p ni ca n • Judicial procedures to sell the business (long term approach) or pita tio de l uida borrower’s (guaranteed) asset after • Financial partner to inject cash within a bt Liq preliminary assessment of liquidation strategic exit plan (short/medium term value and timing of the procedure approach)

lassification to a loan

32 | The Italian NLP market - The Place To Be Our view on the requirements arisen from the adoption of IFRS9 for the Italian banks

The transition to IFRS 9 (from IAS 39) will be critical as banks will be required to accrue provisions based on Starting from 2018, we expect that a higher expected losses and not only upon the occurrence of portion of loans might be at risk to be spcific nts ipairnt tsts ans ill reclassified in loans’ higher risk categories asked to adopt a “forward looking” approach and as such to following the introduction of a different anticipat losss at t first sinals of trioration valuation approach (from “ex post” to s a rslt spcific instrnts as ll as rit strctr “forward looking”). and skilled people to proactively monitor borrowers’ performances will be required.

Classification Impairment

New classification criteria will lead to 3 new classes • New impairment criteria, based on the “expected loss” of loans (“Hold to collect”, “Hold to collect and sale”, and “forward looking“ approach, will result in certain “Trading”). The need to properly classify their exposures portions of the current portfolio classified in loans’ will require the bank to review and strategically refine higher risk categories (e.g. from performing to UTP/ their business model associated to the loans’ management: bad loans).

• On the one hand, for the “portfolio to hold”, banks • Higher impairment (by collective and analytical should strenghten the internal credit monitoring provisioning) will result through the “forward looking” functions in terms of expertise as well as of renovated approach which will move up losses to be incurred over tools of credit risk measurement (e.g. KPI, index, the loans’ lifetime. advanced CRM solutions). • Need to foresee the lifetime losses will require the • On the other hand, for the “portfolio to sell”, banks banks to implement proactive actions to preliminarly should implement specialised units in charge assess borrowers’ likelyhood to pays their debts and of the structuring and execution of loans’ sale avoiding further danger rate from performing to UTP transactions (e.g. data preparation and remediation, and bad loans. securitisation).

PwC | 33 The Servicing Market

Key Message: The credit management industry, in particular the NPL servicing segment, is experiencing a strong evolution, mainly driven by several independent (non-captive) players. As a result, the servicing market displays, on one hand, consolidation movements among the players and, on the other hand, new M&A opportunities. Furthermore, new UTP exposures’ deleverage approach carried out by Italian banks could drive further opportunities to the NPL servicing industry.

34 | The Italian NLP market - The Place To Be The NPLs and the credit servicing structures

The growth of non performing loans in the last decade has not been followed, at the same pace, by the evolution of the industrial recovery capacity, both under a qualitative The credit management industry, in particular and quantitative perspective. As recently outlined by Bank the NPL servicing segment, is experiencing of Italy in a research note on bad loans (“Note di stabilità a strong evolution. The role of independent finaniaria i iilana anar rcor rats ar specialized NPL servicers is gaining importance fon to ar sinificantl fro an to an confirin the urgency to improve credit management and recovery driven by increasing volumes of portfolio processes. disposals from Banks to Investors, together with growing outsourcing of recovery activities by anain an rcorin s rirs sinificant Banks driven by lack of capacity, and fostered by resources and investments, and Banks are responding the implementation of ECB guidelines. with different approaches. While some are strengthening internal recovery capabilities, others are either disposing non-performing assets to Investors such as PE funds, or Today around 40% of the Banks’ bad loans are outsourcing recovery activities entering in relationships managed by specialized player; according to with independent servicers. our estimates the percentage will progressively grow, reaching up to 60% by 2021. Independent servicers (we identify independent servicers as players not under the control of the Bank(‘s) originating the NPL) play a key role in supporting both Banks and Overall, independent servicers manage around Investors in improving recovery performance and reducing €135-155bn of bad loans owned by Banks, other management costs. Despite recent improvements in the financial instittions an instors otal servicing sector in terms of structure and capabilities, there are expected to grow reaching around €200bn in is still a long way to go to develop a robust service offering, able to support credit management of one of the largest the next 3 years. NPL markets in Europe with total gross bad loan gross to be recovered, estimated in the range of 260bn, including other The industry structure is consequently changing, financial instittions an nstor portfolios with a growing number of m&a transactions (roughly ten the most relevant ones in 2016 and 2017, usually involving international players), the establishment of new important players and the evolution of strategic positioning among different segments and business models: master servicing, special servicing, specialized services.

Furthermore, additional important growth opportunities may be connected with recovery activities of the unlikely-to-pay segment and of the performing loans, as proven by some important transactions in the segment.

PwC | 35 Independent servicers: industry structure and ongoing dynamics Many players, with different specialization and approach, are active in the servicing landscape. We identify three clusters: NPLs servicers, Debt Collectors and other specialized players (Chart 27).

Chart 27: Credit collection clusters, depending on size, collateral and phase of collection

Property NPL’s Advisory Credit Collection

Extrajudicial Judicial d Single Bankruptcies Master et agreements

secure Seizure Investors servicers High added ck Un value Extrajudicial activities Foreclosure NPL’s foreclosure procedures Servicers

Advisor in Large ti valuation & DD Secured Asset repossession

Advisor

RE et ck Massive standardised Seizure on salaries, Presence of companies with strong Home phone collection wages or bank accounts Debt specialisation, for example on collectors

information recovery and legal Small ti collection

• NPL Servicers: a limited number of specialists • Other specialized players: other specialized or has a wide coverage of different non- performing “mixed” business models are present in the Industry: loan segments, in particular corporate and secured investors with internally developed credit servicing loans. They are able to activate comprehensive platforms, master servicers (active for administrative- and diversified credit recovery strategies, judicial accounting activities, for securitization transactions and extrajudicial, with due diligence and portfolio and/or in the role of asset manager as general valuation competencies. Such players, usually rated by contractor for the selection and management of special international agencies, are often active as regulated servicers), real estate/legal specialists, business entities (Banks or Financial intermediaries pursuant information specialists. to art. 106) and/or listed in the stock market. Based on such capabilities, they have almost exclusive access The industry structure and strategies of the various players to large outsourcing strategic initiatives by Banks, are undergoing significant changes, adapting to the market and provide support to investors in big portfolio evolution. Just as an example, many third party servicers acquisition or securitization processes. There is a large have recently started investing directly and enlarging their gap between sector leader (doBank, following the capabilities (Creditech of Mediobanca Group, recently acquisition of Italfondiario) and other players, with renamed as MBCredit Solutions). Other players are looking opportunity for additional M&A and consolidation. at combining these models, including master servicing (Cerved), advisory and direct investments (Credito • Debt Collectors: more than 1,000 companies are Fondiario); in other cases, NPL management and servicing active in debt collection, of which around 200 are businesses have been leveraged to develop wider banking UNIREC members representing over 80% of total services platforms, focused on specialized lending and revenues. They are mainly active in the unsecured/ corporate restructuring (Banca Ifis). small ticket segment, serving Banks, Financial companies (consumer lending) and Utilities. Smaller Many transactions have been completed in recent years players, with local geographical reach, often operate as (Chart 28), while others are in progress, confirming outsourcers of the larger DCAs. increasing interest of investors for the sector and horizontal integration, in particular in the debt collector sector.

36 | The Italian NLP market - The Place To Be Chart 28: Credit collection clusters, depending on size, collateral and phase of collection

2013 Italfondiario Cerved

Acquisition of a Acquisition of minority stake Tarida, in BCC specialized in Gestione consr financ crediti from collections vith ICCREA 1.9bn AuM and 250k tickets 2014 Hoist Finance Banca Sistema Cerved

Acquisition of Acquisition of 2 Acquisition of 100% of TRC servicing 80% of Recus. from private platform Candia Specialized in shareholders. & Sting from collection for Specialized in private shareh. telcos and consumer and merger (CS utilities financ Union)

2015 Fortress Lonestar Cerved

Acquisition of Acquisition of Acquisition of UniCredit CAF a servicing 100% of Fin. captive servicing platform with San Giacomo platform €7bn AuM from part of Credito (UCCMB) private Valtellinese shareholders group 2016 Axactor Lindorff Arrow Kruk doBank Dea Capital

Acquisition of Acquisition of Acquisition of Acquisition of Acquisition of Acquisition of CS Union from CrossFactor, a 100% of Zenith 100% of Credit 100% of 66,3% of SPC Banca Sistema small factoring Service, a Base Italfondiario Credit and credit master servicing Management servicing platform platform 2017 Kkr Lindorff Bain Capital Varde

Acquisition of Acquisition of Acquisition of Acquisition of 33% Sistemia Gextra, a small 100% of HARIT, of Guber ticket player servicing from doBank platform specialized in secured loans

Source: Mergermarket, companies annual reports and websites

PwC | 37 Industry size and evolution perspective Chart 29: Bad loans managed by NPL servicers – data in €bn as of YE2016 According to our estimates, as of YE 2016 NPL servicers ~ ana approiatl n of financial 260 Owned by institutions’ NPL: around €85bn GBV is outsourced by Banks other financial ~60 ~100% outsourced (~40%-45% of bad loans owned by Banks) while the rest institutions n is otsorc nstors an otr financial ~135 -155 institutions that have limited direct servicing capabilities. We expect the share of bad loans managed by independent Owned by ~55-65 NPL servicers will continue to rise in the near future, banks 200 reaching around €200bn by 2018. In our estimate, such ~40%-45% growth will be mainly due to two key drivers: outsourced ~80-90

1. Shift of bad loan portfolios from Banks to Investors: Bad Loans NPL servicers market while total bad loans are expected to slightly decrease

in the next 5 years, the increase of disposals from Source: PwC analysis on data of “Bollettino Statistico” of Bank of Italy and data Banks to Investors will be a key factor for the growth of provided by players the NPL servicing market. 2. Increasing outsourcing from Banks: in the medium term, additional dynamics are likely to emerge from “make or buy” strategic initiatives regarding bad loan servicing platforms of Banks. In our view, both the implementation of ECB guidelines on the management of NPLs and GACS legislation, which requires independent special servicers for bad loans securitized under GACS scheme, will drive increasing research for specialization and quality of servicing. This will push outsourcing levels and generate opportunities for high quality outsourcers.

Additional opportunities for NPL servicers may arise from the large stock of Unlikely to Pay. The adoption and implementation of a renovated strategic management and deleveraging approach of UTP by the Italian Banks may in fact bring new additional volumes to the NPL servicing industry.

38 | The Italian NLP market - The Place To Be Table 5: Overview of main servicers (data at 31/12/2016) – Ranking by special servicing total Bad Loans AuM1

Special Servicing Main activities Servicing Master Bank Net Performing Servicing Revenues Ebitda Company of Italy Total Bad Other Equity Rating AuM AuM (€m) (€m) Surveillance Loans NPLs (€m) NPL Debt Debt Master (€bn) (€bn) AuM AuM2 servicing collection purchasing servicing (€bn) (€bn) doBank3 Bank 77.2 1.8 1.9 - 206 64.3 211 a a

Cerved Credit 115 12.4 3.1 9.2 - 85 24.4 31 a a a Management

CAF 115 8.1 - 0.2 - 19 6.8 6 a a

FBS 106 7.9 0.1 - - 18 7.3 14 a a a

Guber 115 7.4 - - - 40 19.4 44 a a

Hoist Italia 115 6.6 - - - 17 0.8 1 a a a6

Sistemia 115 4.9 - - - 17 3.9 5 a

Advancing 106/115 4.3 - - - 34 5.4 n.a. a a a Trade

MBCredit 106 4.1 - - - 60 - n.a. a a a Solutions

Prelios 106 3.3 - - 7.2 9 (0.2) 5 a a a

Finint Revalue 106 2.9 - - - 6 0.5 5 a

Kruk Italia 115 2.7 - - - n.a. n.a. n.a. a a a6

Fire 115 2.6 1.0 0.7 - 40 1.4 11 a a a a

Bayview Italia 115 2.2 - - - n.a. n.a. n.a. a

Primus Capital 106 2.2 - - - 4 n.a. n.a. a

Link Financial 106 2.1 0.1 0.1 - 5 n.a. - a a

Officine CST 115 1.8 - 1.1 - 11 3.9 8 a5

Cribis Credit 115 1.4 11.2 8.2 - 22 n.a. n.a. a Management

Credito Bank 1.2 1.1 1.2 12.8 27 n.a. 89 a a a a Fondiario

AZ Holding 115 1.1 - - - 8 2.8 n.a. a

Fides 115 1.0 - 0.3 - - n.a. n.a. a

Parr Credit 115 0.9 0.2 - - 20 2.5 n.a. a

CS Union 106 0.7 0.3 - - 9 1.8 3 a a

SiCollection 115 0.6 0.2 - - 5 n.a. 1 a a

Gextra - 115 0.5 0.1 - - 4 0.4 0 a Lindorff group4

Securitisation 106 0.5 0.1 1.7 24.6 18 9.8 13 a a Services

Serfin 115 0.5 0.1 0.6 - 19 n.a. n.a. a Centotrenta 106 - - - 4.9 3 0.5 3 a a Servicing

Zenith Service 106 - - - 14.9 - - n.a. a

orce anali on ata roie ericer a o ata hae een irectl roie ericer an hae not een erifie ericer reent highly heterogeneous organizational, industrial and operating structures. Comparing the information presented above requires a correct analysis and understanding of the competitive landscape and servicers business model

1 Includes both owned and third parties portfolios 2 Includes Unlikely to Pay + Past Due more than 90 days oan ro fire incle taloniario etra actiitie hae een acire ro oan inor ro on a ata hae een etracte ro oan financial tateent t not tracte ro doBank results above displayed) ficine i ecialie ainl in creit ericin et rchain actiitie are conce ia ecial roe ehicle Note: Double counting may arise when adding NPL AuM as some servicers outsource part of their portfolios to others due to capacity and/or specialization issues PwC | 39 Table 6: Breakdown of servicers’ Total Bad Loans AuM1 (data at 31/12/2016)

Total Bad Loans Average Secured4 (%) Unsecured4 (%) Company AuM (€bn) ticket (k€)

doBank2 77.2 108 29% 71%

Cerved Credit Management 12.4 14 46% 54%

CAF 8.1 33 32% 68%

FBS 7.9 37 22% 78%

Guber 7.4 54 44% 56%

Hoist Italia 6.6 75 1% 99%

Sistemia 4.9 17 68% 32%

Advancing Trade 4.3 2 100%

MBCredit Solutions 4.1 2 2% 98%

Prelios 3.3 3915 54% 46% Finint Revalue 2.9 20 89% 11%

Kruk Italia 2.7 9 100% Fire 2.6 4 8% 92% Bayview Italia 2.2 94 42% 58%

Primus Capital 2.2 168 59% 41%

Link Financial 2.1 6 10% 90% Officine CST 1.8 14 50% 50% Cribis Credit Management 1.4 41 64% 36% Credito Fondiario 1.2 135 37% 63% AZ Holding 1.1 6 100% Fides 1.0 3 100% Parr Credit 0.9 4 100% CS Union 0.7 8 100% SiCollection 0.6 5 100% Gextra - Lindorff group3 0.5 7 7% 93%

erfin 0.5 1 100%

orce anali on ata roie ericer a o ata hae een irectl roie ericer an hae not een erifie ericer reent highly heterogeneous organizational, industrial and operating structures. Comparing the information presented above requires a correct analysis and understanding of the competitive landscape and servicers business model 1 Includes both owned and third parties portfolios oan ro fire incle taloniario etra actiitie hae een acire ro oan inor ro on a ata hae een etracte ro oan financial tateent t not tracte ro doBank results above displayed) 4 Percentages are based on total NPL portfolio: breakdown for Master and Special servicing activities have not been provided 5 Data refers only to Special servicing average Ticket

40 | The Italian NLP market - The Place To Be Owned 4 (%) Banks4 (%) Investors4 (%) Others4 (%)

61% 39% 58% 42%

57% 43%

13% 28% 60%

14% 18% 69%

100%

69% 24% 8%

15% 31% 28% 26%

48% 13% 38%

16% 84%

2% 43% 56%

n.a.

6% 54% 40% 100%

1% 60% 40%

1% 1% 98%

70% 16% 14%

68% 32% 17% 42% 40% 1%

52% 21% 27%

66% 34%

n.a. 100%

23% 2% 38% 37% 85% 15%

100%

PwC | 41 Table 7: Breakdown of servicers’ Total Bad Loans AuM1 (data at 31/12/2016)

Geographical NPL breakdown (%) Company North4 Centre5 South6

doBank2 46% 23% 31% Cerved Credit Management 41% 21% 38% CAF 40% 35% 25% FBS 27% 37% 37% Guber 41% 39% 20% Hoist Italia 40% 23% 37% Sistemia n.a. Advancing Trade 41% 20% 39% MBCredit Solutions 22% 37% 42% Prelios 24% 24% 51% Finint Revalue 54% 29% 17% Kruk Italia 35% 25% 40% Fire 30% 22% 49% Bayview Italia 58% 20% 22% Primus Capital 33% 48% 19% Link Financial 21% 36% 43% Officine CST 36% 18% 46% Cribis Credit Management 46% 21% 33% Credito Fondiario 52% 30% 18% AZ Holding 35% 38% 27% Fides 19% 23% 58% Parr Credit 36% 20% 44% CS Union n.a. SiCollection 47% 21% 32% Gextra - Lindorff group3 34% 24% 41% Serfin 30% 50% 20%

orce anali on ata roie ericer a o ata hae een irectl roie ericer an hae not een erifie ericer reent highly heterogeneous organizational, industrial and operating structures. Comparing the information presented above requires a correct analysis and understanding of the competitive landscape and servicers business model 1 Includes both owned and third parties portfolios oan ro fire incle taloniario etra actiitie hae een acire ro oan inor ro on a ata hae een etracte ro oan financial tateent t not tracte ro oan results above displayed) ncle ieonte alle ota oaria eneto rentino lto ie rili enenia ilia iria ilia oana 5 Includes: Toscana, Umbria, Marche, Lazio 6 Includes: Abruzzo, Molise, Campania,Puglia,Basilicata, Calabria,Sicilia,Sardegna

42 | The Italian NLP market - The Place To Be Type of loan resolution - nr of loans (%) Type of loan resolution - nr of Loans (%)

Secured Unsecured Judicial Extrajudicial Loan Sale Judicial Extrajudicial Loan Sale

22% 78% 2% 98%

13% 49% 38% 11% 69% 20%

41% 14% 45% 9% 79% 12%

24% 63% 12% 10% 77% 12%

65% 35% 7% 93%

n.a. n.a.

70% 30% 50% 50%

n.a. 11% 89%

n.a. 18% 82%

67% 25% 8% 35% 31% 34%

63% 37% 15% 85%

n.a. 30% 70% 70% 30% 8% 92%

n.a. n.a.

71% 27% 2% 2% 96% 2%

91% 9% 3% 97%

78% 21% 1% 31% 68% 1%

41% 49% 10% 15% 85%

55% 30% 15% 25% 67% 8%

n.a. n.a.

n.a. 100% 100% 100%

n.a. n.a.

n.a. 6% 94% 3% 97% 100%

n.a. n.a.

PwC | 43 Regulatory changes

Key Message: Competitive pressure, pursuit of fficinc an si consistnt it t callns of a new regulation always more intense, need to seize the opportunities provided by new digital technologies: these are the main drivers of a violent process that is deeply involving the Italian banking system.

44 | The Italian NLP market - The Place To Be On June 2017, new aspects were inaugurated by Article 7.1*. In particular, the new article develops the ambit of operation of the 130 SPV (Italian securitization vehicles), to help the sale of impaired receivables (transferred by talian ans or financial intriaris ristr to Article 106 of the Legislative Decree No 385 of the 1993, the “Italian Banking Act”), in case of recovery or restructuring operations and in case of securitisation transactions concrnin rcials arisin intr alia fro financial leasing agreements.

The main aspects are:

1. NPLs securitisation 3. ReoCo

In the framework of NPLs securitisation, sold by banks or It is also possible to set up SPV corporations, called financial intriaris rticl of t ntion ReoCo, having the aim of purchasing, managing and above Italian Banking Act), the 130 SPV will be able increase the value of real estate, registered movable to assin loans to sinificant tors it t plicit assets and any other asset securing securitized aim to help their prospects for Collectability of the receivables (including also assets subject to leasing receivables and improve them returning current in bonis. agreements). The value generated by these activities is The debtors must meet some conditions: srat to t nfit of t notolrs an for t payment of the securitization costs. • the borrowers shall be identified by a bank or a financial intermediary enrolled with the register ar sct to t talian fiscal las on lasin held pursuant to Article 106; corporations. Moreover, the real estate transfers • the notes issued to finance the granting of loans concl sc ar sct to t ta nfits sall sscri alifi instors provided for the corporations carrying out leasing activities. • the bank or the financial intermediary (ex Article 106) shall retain a considerable economic interest In case the aforesaid assets and the relevant leasing in the transaction (retention rate of 5%). agreements are transferred, the SPV should: • fully consolidated in the balance sheet of a bank; 2. Securitisation • set-up solely for the purposes of concluding the During the restructuring agreement, composition or securitization transactions; recovery procedure (set by Articles 124, 160, 182- • liquidated once at the end of the securitization bis e 186-bis of the Bankruptcy Law or other similar transaction. procedures), the SPV 130 would be capable to purchase or sign equity or quasi-equity instruments issued by the assignors. The purposes are making a debt-to-equity 4. Publicity system sap an rant loans to t sinificant tors it t aim to develop their prospects for collectability of the receivables and assist them returning current in (bonis). The receivable purchased by the 130 SPV are published The 130 SPV shall indicate a person in the securitisation through the registration in the undertakings register. prospectus who meets the necessary competence notic of t transfr is plici in t fficial requirements and authorizations provided by the law Journal. an if tis sct is a an or financial intriar The mentioned notice should mention information the compliance of the activities undertaken shall be as: names both of the assignor and the assignee, date monitored. The amount deriving from the purchase/ of transfer, information on the relationships of the subscription of mentioned instruments is considered receivables origination and the period, the internet site as payments from debtors exclusively aimed to satisfy where the assignor and assignee will make available the rights in the notes issued and the payment of the the information regarding the receivables and the securitisation transaction costs. confiration of tir transfr to t tor

* approved by the Italian Parliament on the Draft Bill No. 2853, converting the Decree Law No 50/2017 and amending, inter alia, the Law No 130 of the 1999 the “Italian Securitisation Law” PwC | 45 Recent market activity and

Key Message: 2017 volumes are expected to reach outlook more than €60bn, mainly driven by the huge prospective MPS deleveraging (€29.4bn). We foresees that from 2017 onwards the transactions likely will include not only bad loans (“NPL”), but also the other categories of Non Performing Exposures such as Unlikely to Pay and Foreborne. In other words, we expect new trends in the market as the sale of portfolios composed by mixed asset class as well as portfolios made by a limited number of borrowers specialised in real estate developments and sale of single names under restructuring.

46 | The Italian NLP market - The Place To Be Banks continue to reduce the volume of NPL on their The NPL of Banca Popolare di Vicenza and Veneto Banca balance sheets, (totalling as a whole €16.8bn at the end of 2016) will be liquidated through a public Bad Bank following the • on one hand, through the restructuring process in Decree enacted by the Italian Government on 25 June 2017 place concerning Italian ailing banks (e.g. the “four stating the acquisition of certain asset (excluding NPL) and regional banks” rescued by the Italian Authorities in liabilities of the two banks by Intesa Sanpaolo. 2015 and eventually acquired by UBI and BPER in May 2017, which ultimately opened new opportunities in Banco BPM planned to deleverage a NPL portfolio the market, mainly through the Bad bank created to (GBV of €2.0bn) composed by unsecured SME loans. held and sell their NPL); Creval is in the early process to deleverage, through • on the other hand, through the implementation of securitization, a NPL mixed portfolio of secured and deleverage plans carried on by significant Italian banks unsecured loans (GBV equal to €1.5bn). (e.g. Unicredit, Intesa Sanpaolo, Banco BPM). Intesa Sanpaolo is in the process of selling, through The restructuring measures for MPS, overburdened by securitization, a corporate NPL portfolio mainly residential €29.4bn (GBV) of Bad Loans is currently in progress and (real estate development) highly concentrated with 80 we expect a decisive solution to be implemented by the end borrowers for €1.35bn of GBV. of 2017. The stock of €10.3bn (GBV) of NPL acquired by the Bad Bank REV from the “four regional banks” rescued by the Italian Authorities in 2015, are expected to come to market in 2017, via separate transactions.

Chart 30: Trend of main NPL transactions in the Italian market (€ bn)

34 0.3

19 25.2 1.2 1.2 9 5.4 10 0.8 0.6 3.7 0,1 5 4 2.6 1.4 3.7 1.8 3.1 1.8 0.2 2.1 0.2 6.5 4.4 3.4 2.6 3.8 3.8 0.8 2012 2013 2014 2015 2016 2017 YTD

Consumer Unsecured Secured Mixed Secured/Usecured Mainly Usecured Other Total GBV

Source: PwC market analysis

PwC | 47 Hypo Alpe Adria foresees to deleverage circa €1.0bn of NPL Banca Popolare di Bari, which closed in 2016 the during the third quarter of 2017. deleverage of a portion (€0.47bn) of its NPL through the first Italian securitization sealed with the recourse Carige could start a deleverage process for portions of its to GACS, is in the process to carry on the deleverage of Bad Loans portfolio (totaling €3.7bn). further €0.3bn of NPL.

Cassa Centrale Banca is about to put in the market a These volumes remain modest compared to banks’ total portfolio including NPL originated by several rural saving stocks of Bad Loans, but we expect portfolio disposals banks for an amount equal to €0.5bn. to further increase. As mentioned earlier, the new ECB guidelines are set to have a great impact on the banks NPEs’ deleverage programme.

Date Seller Volume (€m) Macro asset class Buyer

2017 Q2 Banco BPM 750 Secured Algebris

2017 Q2 anca eiocreito 400 Secured Bain Capital

2017 Q2 Banca Sella 126 Mixed Secured/Unsecured B2 Holding

2017 Q2 Barclays 190 Unsecured Banca IFIS

2017 Q2 Unicredit Leasing 500 Unsecured MBCredit Solutions

2017 Q2 Intesa SanPaolo 2,500 Mixed Secured/Unsecured CRC

2017 Q2 onfiential 22 Unsecured Axactor

2017 Q2 Intesa SanPaolo Provis 280 Secured Credito Fondiario 2017 Q2 onfiential 302 Unsecured Banca IFIS 2017 Q2 onfiential 112 Unsecured Banca IFIS 2017 Q1 Deutsche Bank 413 Mixed Secured/Unsecured Banca IFIS 2017 Q1 real 50 Secured onfiential 2017 Q1 Banca IFIS 750 Consumer Kruk Italia 2017 Q1 Deutsche Bank 130 Unsecured Kruk Italia 2017 Q1 Unicredit 50 Other Kruk Italia 2017 Q1 Santander 160 Unsecured Banca IFIS 2017 Q1 HETA 657 Mixed Secured/Unsecured Bain Capital 2017 Q1 Barclays 177 Secured AnaCap 2017 Q1 Agos Ducato 350 Unsecured Hoist Finance 2017 Q1 BNL 1,000 Unsecured Banca IFIS 2017 Q1 Banco Popolare 641 Unsecured Hoist Finance

48 | The Italian NLP market - The Place To Be Non Performing Exposures classification

PwC | 49 Non-Performing Exposures

The commonly used term non-performing loans (“NPL”) is The terms of NPL (“Non Performing Loans”) and based on different definitions across Europe. NPE (“Non Performing Exposures”) are used To overcome problems, EBA has issued a common interchangeably within this study, as even provided in definition of Non-Performing Exposures (“NPE”) which is the Guidance to banks on non-performing loans (March used for supervisory reporting purposes. 2017) by ECB – Banking Supervision.

In Italy, banks are also required to distinguish among different classes of NPE: (i) Bad Loans, (ii) Unlikely to Pay and (iii) Past Due; the sum of these 3 categories corresponds to the Non-Performing Exposures referred to in the EBA ITS.

Old New

• Exposure to any borrower whose loans are not included in NPL other categories and who, at the date of the balance sheet closure, have Past Due amounts or unauthorized overdrawn positions of more than 90 days. Past Due Past Due more than • A sub-segment is now represented by the Forborne Non- Esposizioni scadute 90 days loans (debt) Performing Exposures (“FNPE”), credits granted to a > 90 giorni Esposizioni scadute contrpart in financial ifficlt an ic ar not classifi as a oans an a n sct to t oification of t trs an conitions of t contract or rfinancin

Restructured • classification of loans in tis cator is t rslt of t Crediti ristrutturati Unlikely to Pay nt of t an aot t tors nlilioo to flfil its credit obligations. This category substitutes the old sub- Inadempienze probabili standard loans (“Incagli”) and restructured loans (“Crediti Sub standard Ristrutturati”). Incagli Including FNPE (*) • A sub-segment of the Unlikely to Pay is now represented by the FNPE.

Bad Loans • Exposure to a borrower in a position of insolvency (not Bad Loans Sofferenze necessarily recognised by a Court) or a substantially similar Sofferenze situation, irrespective of the presence of any collateral. Same Including FNPE (*) as prios classification of a oans or offrn • A sub-segment of the Bad Loans is now represented by the FNPE.

FNPE may become a Forborne Performing Exposure if: • 12 months have passed from last allowance • No past due from last allowance occurred

(*) FNPE: Forborne Non-Performing Exposures Source: EBA, EBA/ITS/2013/03/rev1

50 | The Italian NLP market - The Place To Be Appendix Gross Bad Loans volume (€ bn)

Veneto Banca 53.9 53.2 Veneto Banca

51.0 2.7 2.9 2.6 3.3 53.9 53.2 49.0

51.0 2.7 2.9 2.6 3.3 49.0 Popolare di Vicenza Veneto Banca 38.2 39.2 37.9 Popolare di Vicenza 53.9 53.2 2.8 3.4 4.1 5.1 34.6 38.2 39.2 37.9 51.0 2.7 2.9 2.6 3.3

49.0 2.8 3.4 4.1 5.1 34.6 29.4 29.4 26.6

24.3 Popolare di Vicenza 21.6 21.6 26.6 38.2 39.2 37.9 24.3 21.6 21.6 2.8 3.4 4.1 5.1 34.6 14.4 13.6 13.8 29.4 2.2 2.6 2.7 2.9 11.5 8.9 8.1 0.8 0.9 0.9 0.7 6.9 14.4 7.1 7.0 6.7 8.4 6.6 7.3 7.1 13.6 13.8 7.0 6.5 5.9 6.3 5.9 5.8 5.5 5.5 5.5 2.2 2.6 2.7 2.9 26.6 11.5 8.9 8.1 0.8 0.9 0.9 24.3 0.7 6.9 7.1 7.0 6.7 8.4 6.6 7.3 7.1 7.0 6.5 5.9 21.6 6.3 5.9 5.8

UCG ISP MPS21.6 Banco BPM BPER 5.5 5.5 UBI BNL 5.5 Cariparma Credem Veneto Banca + UCG ISP MPS UBI BNL BPER Cariparma Credem Banco BPM VenetoPop Vicenza Banca + YE - 2013 YE - 2014 YE - 2015 YE - 2016 14.4 Pop Vicenza 13.6 13.8 2.2 2.6 2.7 2.9 11.5 8.9 8.1

YE - 2013 YE - 2014 YE - 2015 YE - 2016 0.8 0.9 0.9 0.7 6.9 7.1 7.0 6.7 8.4 6.6 7.3 7.1 7.0 6.5 5.9 6.3 5.9 5.8 5.5 5.5 5.5 UCG ISP MPS UBI BNL BPER Cariparma Credem Banco BPM Veneto Banca + Net Bad Loans volume (€ bn) Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016 Veneto Banca Ve1.5ne t o B1.5an ca 1.2 1.4 1.5 1.5 1.2 1.4

20.8 Popolare di Vicenza 20.4

18.7 Veneto Banca

20.8 Popolare di Vicenza 20.4

18.7 1.6 1.7 1.9 2.0 1.5 1.5 1.2 1.4 15.0 14.9 1.6 1.7 1.9 2.0 14.2 15.0 14.9 13.6 13.0 14.2 20.8 13.6 Popolare di Vicenza 20.4 10.4 13.0 18.7 9.7 8.9 8.4 10.4 7.9 7.8 7.3 1.6 1.7 1.9 2.0 3.2 3.0 3.0 9.7 6.7 2.8 3.0 2.5 2.7 8.9 2.4 8.4 15.0 14.9 7.9 7.8 7.3 1.2 3.2 3.0 3.0 6.7 2.8 3.0 1.1 1.1 4.3 4.0 2.5 2.7 0.4 3.5 1.0 4.0 2.4 3.2 3.1 0.3 0.3 3.1 3.4 0.3 14.2 5.5 13.6 1.2 13.0 1.1 1.1 4.3 4.0 0.4 3.5 1.0 4.0 3.2 3.1 0.3 0.3 3.1 3.4 UCG ISP MPS BPER 0.3 Banco BPM UBI BNL 5.5 Cariparma Credem Veneto Banca + 10.4 9.7

8.9 Pop Vicenza UCG ISP MPS8.4 UBI BNL BPER Cariparma Credem Banco BPM Veneto Banca + 7.9 7.8 7.3 3.2 3.0 3.0

YE - 2013 YE - 2014 YE - 2015 YE - 2016 6.7 2.8 3.0 2.5 2.7

2.4 Pop Vicenza

YE - 2013 YE - 2014 YE - 2015 YE - 2016 1.2 1.1 1.1 4.3 4.0 0.4 3.5 1.0 4.0 3.2 3.1 0.3 0.3 3.1 3.4 0.3 5.5 UCG ISP MPS UBI BNL BPER Cariparma Credem Banco BPM Veneto Banca Veneto Banca + Pop Vicenza Veneto Banca YE - 2013 YE - 2014 YE - 2015 YE - 2016 44.7 47.8 53.4 56.7 Bad Loans Coverage ratio (%) 44.7 47.8 53.4 56.7 Popolare di Vicenza Veneto Banca Popolare di Vicenza 43.1 50.1 54.0 60.5 44.7 47.8 53.4 56.7 43.1 50.1 54.0 60.5

73.3 Popolare di Vicenza 65.3 73.3 63.4 64.8 64.6 43.1 50.1 54.0 60.5 62.8 61.8 63.3 60.7 62.5 62.2 61.0 62.0 65.3 61.8 58.8 60.8 63.4 64.8 59.0 59.1 57.9 58.6 59.6 64.6 57.6 58.2 57.6 57.2 62.8 56.5 61.8 63.3 60.7 56.5 62.5 62.2 61.0 62.0 55.0 61.8 55.0 58.8 60.8 59.0 59.1 57.9 53.8 58.6 59.6 57.6 58.2 57.6 57.2 56.5 56.5 55.0 55.0 49.1 73.3 53.8 45.7 45.1 45.9 42.2 43.9 49.1 41.9 65.3 41.6 63.4 64.8 45.7 45.1 64.6 45.9 42.2 38.6 38.8 62.8 61.8 63.3 43.9 60.7 62.5 62.2 61.0 41.9 62.0 61.8 58.8 60.8 41.6 59.0 59.1 57.9 58.6 59.6 57.6 58.2 57.6 57.2 38.6 38.8 56.5 56.5 55.0 55.0 53.8 49.1 45.7 45.1 45.9 42.2 43.9 41.9 41.6 38.6 38.8 5.5 UCG ISP MPS BPER Banco BPM UBI BNL 5.5 Cariparma Credem Veneto Banca + UCG ISP MPS UBI BNL BPER Cariparma Credem Banco BPM VenetoPop V Bicenzaanca + YE - 2013 YE - 2014 YE - 2015 YE - 2016 Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016

5.5 Veneto Banca UCG ISP MPS UBI BNL BPER Cariparma Credem VeBanconeto BPMBanca Veneto Banca + 9.7 11.0 P 11.9op Vicenza 18.3 YE - 2013 YE - 2014 YE - 2015 YE - 2016 9.7 11.0 11.9 18.3 Popolare di Vicenza Veneto Banca Popolare di Vicenza 8.5 11.1 14.2 18.7 9.7 11.0 11.9 18.3 8.5 11.1 14.2 18.7

Popolare di Vicenza

8.5 11.1 14.2 18.7 Source: Financial Statements as of YE-2016, YE-2015,22.1 YE-2014, YE-2013. 22.1 19.8 8.6 18.6 52 | The Italian NLP market - The Place To Be 1 19.8 8.6 17.0 18.6 1 2 14.7 14.5 17.0 13.3 13.9 13.0 2 13.2 13. 1 14.7 14.5 22.1 . 12.0 11.3 11.9 13.3 13.9 10.9 11.1 10.4 10.7 13.0 10.3 13.2 13. 1 11.1 10.4 11 9.6 0 10.3 19.8 . 10.3 8.6 . 12.0 11.3 11.9 9.0 9.3 8.4 8.9 18.6 1 10.9 11.1 9.0 8.4 9 10.4 10.7 10.3 11.1 10.4 11 9.6 0 7.1 7.9 7.2 10.3 10.3 . 17.0 7.3 9.0 9.3 6.4 8.4 8.9 6.7 9.0 8.4 9 5.6 2 7.1 7.9 7.2 14.7 14.5 7.3 3.8 6.4 3.5 6.7 3.6 3.6 13.3 13.9 5.6 5.5 13.0 13.2 13. 1 . 3.8 12.0 11.3 11.9 3.5 3.6 3.6 10.9 UCG ISP MPS Banco11.1 BPM 10.7 10.4 BPER UBI BNL 5.5 Cariparma Credem 10.3 Veneto Banca + 11.1 10.4 11 9.6 0 10.3 10.3 . 9.0 9.3 8.4 8.9 Pop Vicenza 9.0 8.4 UCG ISP MPS UBI BNL BPER Cariparma Credem Banco BPM Veneto9 Banca + 7.1 7.9 YE - 2013 YE - 2014 YE - 2015 YE - 2016 7.2 7.3 6.4

6.7 Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016 5.6 3.8 3.5 3.6 3.6 5.5 UCG ISP MPS UBI BNL BPER Cariparma Credem Banco BPM Veneto Banca + Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016 Veneto Banca 53.9 53.2

51.0 2.7 2.9 2.6 3.3 49.0

Popolare di Vicenza 38.2 39.2 37.9 2.8 3.4 4.1 5.1 34.6 29.4 26.6 24.3 21.6 21.6 14.4 13.6 13.8 2.2 2.6 2.7 2.9 11.5 8.9 8.1 0.8 0.9 0.9 0.7 6.9 7.1 7.0 6.7 8.4 6.6 7.3 7.1 7.0 6.5 5.9 6.3 5.9 5.8 5.5 5.5 5.5 UCG ISP MPS UBI BNL BPER Cariparma Credem Banco BPM Veneto Banca + Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016

Veneto Banca 1.5 1.5 1.2 1.4

20.8 Popolare di Vicenza 20.4 18.7 1.6 1.7 1.9 2.0 15.0 14.9 14.2 13.6 13.0 10.4 9.7 8.9 8.4 7.9 7.8 7.3 3.2 3.0 3.0 6.7 2.8 3.0 2.5 2.7 2.4 1.2 1.1 1.1 4.3 4.0 0.4 3.5 1.0 4.0 3.2 3.1 0.3 0.3 3.1 3.4 0.3 5.5 UCG ISP MPS UBI BNL BPER Cariparma Credem Banco BPM Veneto Banca + Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016

Veneto Banca 44.7 47.8 53.4 56.7

Popolare di Vicenza

43.1 50.1 54.0 60.5 73.3 65.3 63.4 64.8 64.6 62.8 61.8 63.3 60.7 62.5 62.2 61.0 62.0 61.8 58.8 60.8 59.0 59.1 57.9 58.6 59.6 57.6 58.2 57.6 57.2 56.5 56.5 55.0 55.0 53.8 49.1 45.7 45.1 45.9 42.2 43.9 41.9 41.6 38.6 38.8 5.5 UCG ISP MPS UBI BNL BPER Cariparma Credem Banco BPM Veneto Banca + Gross Bad Loans ratio (%) Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016

Veneto Banca 9.7 11.0 11.9 18.3

Popolare di Vicenza

8.5 11.1 14.2 18.7 22.1 19.8 8.6 18.6 1 17.0 2 14.7 14.5 13.3 13.9 13.0 13.2 13. 1 . 12.0 11.3 11.9 10.9 11.1 10.7 10.4 10.3 11.1 10.4 11 9.6 0 10.3 10.3 . 9.0 9.3 8.4 8.9 9.0 8.4 9 7.1 7.9 7.2 7.3 6.4 6.7 5.6 3.8 3.5 3.6 3.6 5.5 UCG ISP MPS UBI BNL BPER Cariparma Credem Banco BPM Veneto Banca + Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016

Net Bad Loans ratio (%)

Veneto Banca 5.7 6.2 6.2 9.6

Popolare di Vicenza

5.1 6.0 7.5 9.0 9.7 9.7 9.2 9.2 8.7 8.7 7.1 7.1 7.1 7.1 7.1 7.1 6.8 6.8 6.8 6.8 6.9 6.9 6.6 6.6 6.6 6.6 6.4 6.4 6.1 6.1 5.6 5.6 5.3 5.3 5.3 5.3 5.1 5.1 5.1 5.1 4.9 4.9 4.9 4.9 4.7 4.7 4.4 4.4 4.4 4.4 4.3 4.3 4.2 4.2 4.3 4.3 4.1 4.1 3.9 3.9 3.7 3.7 3.7 3.7 3.8 3.8 3.2 3.2 3.2 3.2 3.1 3.1 3.1 3.1 2.7 2.7 1.6 1.6 1.5 1.5 1.5 1.5 1.5 1.5

UCG ISP MPS UBI BNL BPER Cariparma Credem Banco BPM Veneto Banca + Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016

Gross NPL volume (€bn)

Veneto Banca 2.7 2.9 5.6 7.0 87.2 87.2 85.5 85.5 82.9 82.9 Popolare di Vicenza 77.1 77.1 2.8 3.4 8.7 9.8 63.4 63.4 63.0 63.0 58.4 58.4 57.6 57.6 45.3 45.3 46.9 45.8 46.9 45.8 36.1 36.1 16.8 16.8 14.3 14.3 13.1 13.1 13.5 13.5 13.1 13.1 12.7 12.7 12.5 12.5 12.3 12.9 12.3 12.9 11.4 11.4 11.2 11.0 11.2 11.0 26.8 26.8 10.3 10.3 11.0 11.0 26.0 26.0 6.3 6.3 5.5 5.5 5.0 5.0 5.2 5.2 5.0 5.0 3.9 3.9 1.4 1.4 1.4 1.4 1.3 1.3 1.3 1.3 13.6 13.6 5.5 5.5 11.5 11.5 UCG ISP MPS UBI BNL BPER Cariparma Credem Banco BPM Veneto Banca + Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016

Source: Financial Statements as of YE-2016, YE-2015, YE-2014, YE-2013. Veneto Banca PwC | 53 1.5 1.5 3.6 3.9

Popolare di Vicenza

1.6 1.7 5.3 5.2 42.6 42.6 41.1 41.1 40.5 40.5 33.6 33.6 33.3 33.3 31.1 31.1 30.0 30.0 28.7 28.7 24.2 24.2 23.1 23.1 21.0 21.0 20.3 20.3 17.8 17.8 16.2 16.2 6.4 6.4 6.4 6.4 6.5 6.2 6.5 6.2 6.4 6.4 6.3 6.3 5.8 5.8 6.2 6.2 2.9 3.1 2.9 3.1 3.0 3.0 9.7 9.7 3.1 3.1 3.2 3.2 9.3 9.3 2.3 2.3 9.5 9.5 8.1 8.1 9.1 9.1 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 7.3 7.3 8.9 8.9 6.7 6.7 5.5 5.5 UCG ISP MPS UBI BNL BPER Cariparma Credem Banco BPM Veneto Banca + Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016

Veneto Banca 44.7 47.8 35.9 43.4

Popolare di Vicenza

43.1 50.1 38.9 47.3 62.8 62.8 55.3 55.3 55.6 55.6 51.5 51.5 51.9 51.1 51.9 51.1 51.1 51.1 49.1 49.1 48.5 48.5 48.1 48.1 48.7 48.7 48.9 48.9 46.7 46.7 47.5 47.5 44.5 44.5 46.0 46.0 44.6 44.6 45.7 45.7 44.2 44.2 45.9 45.9 43.9 43.9 42.2 42.2 42.5 42.5 43.7 43.7 40.7 40.7 40.5 40.5 21.6 21.6 41.9 41.9 41.8 41.8 40.7 40.7 39.6 39.6 38.7 38.7 38.6 38.6 37.8 37.8 37.7 37.7 37.3 37.3 35.7 35.7 33.6 33.6 27.8 27.8 27.3 27.3 26.5 26.5

UCG ISP MPS UBI BNL BPER Cariparma Credem Banco BPM Veneto Banca + Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016 Veneto Banca

Ve n5.7eto B a n ca6.2 6.2 9.6 5.7 6.2 6.2 9.6 Popolare di Vicenza

Popolar 5.1 e di Vicenza6.0 7.5 9.0

5.1 6.0 7.5 9.0 9.7 9.2 8.7 9.7 9.2 8.7 7.1 7.1 7.1 6.8 6.8 6.9 6.6 6.6 6.4 6.1 7.1 7.1 7.1 6.8 6.8 6.9 5.6 6.6 5.3 6.6 6.4 5.3 5.1 6.1 5.1 4.9 4.9 4.7 5.6 4.4 5.3 4.4 5.3 4.3 4.2 5.1 4.3 4.1 5.1 3.9 3.7 4.9 4.9 3.7 3.8 4.7 3.2 3.2 4.4 3.1 4.4 4.3 4.2 4.3 3.1 4.1 2.7 3.9 3.7 3.7 3.8 3.2 3.2 3.1 3.1 1.6 2.7 1.5 1.5 1.5

UCG ISP MPS UBI BNL BPER Cariparma 1.6 Credem Banco BPM Veneto Banca + 1.5 1.5 1.5 Pop Vicenza YE - 201UCG3 YE - 2014 ISPYE - 2015 YEMP - 201S 6 UBI BNL BPER Cariparma Credem Banco BPM Veneto Banca + Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016

Veneto Banca

Ve neto2.7 Banca 2.9 5.6 7.0 87.2 85.5 2.7 2.9 5.6 7.0 82.9 Popolare di Vicenza 77.1 87.2 85.5

82.9 P opo2.8lare d i V3.4icenza 8.7 9.8 77.1 63.4 63.0 58.4 57.6 2.8 3.4 8.7 9.8 63.4 63.0 58.4 57.6 45.3 46.9 45.8 36.1 16.8 45.3 46.9 45.8 14.3 13.1 13.5 13.1 12.7 12.5 12.3 12.9 11.4 11.2 11.0 26.8 10.3 11.0 36.1 26.0 6.3 16.8 5.5 5.0 5.2 5.0 14.3 3.9 13.1 1.4 1.4 13.5 13.1 1.3 1.3 12.7 13.6 12.5 12.3 12.9 11.4 11.2 11.0 26.8 10.3 11.0 5.5 26.0 11.5 6.3 5.5 5.0 5.2 5.0 UCG ISP MPS UBI BNL BPER 3.9 Cariparma Credem Banco BPM Veneto Banca + 1.4 1.4 1.3 1.3 13.6 5.5 11.5 Pop Vicenza YE - 2U01CG3 YE - 2014 ISPYE - 2015 YEMP - 2S016 UBI BNL BPER Cariparma Credem Banco BPM Veneto Banca + Pop Vicenza NetYE NPL - 2013 volumeYE - 201 4(€ bnYE) - 2015 YE - 2016

Veneto Banca

Veneto 1.5 B anca 1.5 3.6 3.9 1.5 1.5 3.6 3.9 Popolare di Vicenza

P opo1.6lare d i V1.7icenza 5.3 5.2 42.6 41.1 40.5 1.6 1.7 5.3 5.2 42.6 41.1 33.6 33.3 40.5 31.1 30.0 28.7 33.6 33.3 31.1 24.2 23.1 30.0 28.7 21.0 20.3 17.8 24.2 16.2 23.1 6.4 6.4 6.5 6.2 6.4 6.3 5.8 6.2 21.0 20.3 2.9 3.1 3.0 9.7 17.8 3.1 3.2 9.3 2.3 9.5 8.1 16.2 9.1 0.8 0.8 0.8 0.8 6.4 7.3 8.9 6.4 6.5 6.2 6.7 6.4 6.3 5.8 6.2 5.5 2.9 3.1 3.0 9.7 3.1 3.2 9.3 2.3 UCG ISP MPS UBI9.5 BNL BPER Cariparma Credem Banco BPM

8.1 Veneto Banca + 9.1 0.8 0.8 0.8 0.8 7.3 8.9 6.7 5.5 Pop Vicenza YE - 201UCG3 YE - 2014 ISPYE - 2015 YE M- 201PS 6 UBI BNL BPER Cariparma Credem Banco BPM Veneto Banca + Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016

NPL Coverage ratio (%) Veneto Banca

Ve 44.7neto Banca 47.8 35.9 43.4 44.7 47.8 35.9 43.4 Popolare di Vicenza

P43.1opolar e di 50.1 Vicenza 38.9 47.3

43.1 50.1 38.9 47.3 62.8 55.3 55.6 62.8 51.5 51.9 51.1 51.1 49.1 48.5 48.1 48.7 48.9 46.7 47.5 55.3 55.6 44.5 46.0 44.6 45.7 44.2 45.9 43.9 42.2 51.5 42.5 43.7 51.9 51.1 51.1 40.7 40.5 21.6 41.9 41.8 40.7 49.1 39.6 48.5 38.7 48.1 48.7 38.6 48.9 46.7 47.5 37.8 37.7 37.3 44.5 46.0 35.7 44.6 45.7 44.2 45.9 33.6 43.9 42.2 42.5 43.7 40.7 40.5 21.6 41.9 41.8 40.7 39.6 38.7 38.6 37.8 37.7 37.3 27.8 27.3 26.5 35.7 33.6 27.8 27.3 26.5

UCG ISP MPS UBI BNL BPER Cariparma Credem Banco BPM Veneto Banca + Pop Vicenza YE - 2UCG013 YE - 2014 ISPYE - 2015 YEM P- S2016 UBI BNL BPER Cariparma Credem Banco BPM Veneto Banca + Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016

Gross NPL ratio (%)

Veneto Banca 9.7 11.0 25.8 38.5

Popolare di Vicenza

8.5 11.1 30.0 35.8 36.9 34.8 34.5 31.7 28.2 24.5 23.3 22.1 22.6 21.9 21.6 20.3 19.0 19.2 18.0 16.9 17.0 16.0 16.6 16.1 15.9 15.6 14.8 15.4 15.2 14.6 14.5 13.7 13.3 12.4 12.6 11.1 11.1 10.2 9.0 9.0 6.3 6.0 6.0 5.8 5.5 UCG ISP MPS UBI BNL BPER Cariparma Credem Banco BPM Veneto Banca + Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016

Source: Financial Statements as of YE-2016, YE-2015, YE-2014, YE-2013. Veneto Banca 54 | The Italian NLP market - The Place To Be 5.7 6.2 18.3 26.3 Popolare di Vicenza

5.1 6.0 21.1 22.9 24.2 21.7 19.9 19.3 19.0 16.0 15.8 14.9 14.5 14.6 13.9 13.6 11.5 11.1 10.5 9.5 9.9 10.3 10.4 9.9 9.5 9.7 9.1 8.4 8.2 9.0 8.2 8.2 8.5 7.6 6.4 6.1 6.6 6.4 5.3 5.6 4.0 3.7 3.4 3.4 5.5 UCG ISP MPS UBI BNL BPER Cariparma Credem Banco BPM Veneto Banca + Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016

Veneto Banca N/A N/A 172.0 401.2

Popolare di Vicenza

N/A N/A 264.6 281.5 6 366.5 30. 3 330.6 3 26. 2 226.3 223.1 164.9 129.4 135.5 51.3 115.7 114.3 34.6 41.8 35.0 103.2 29.8 33.1 89.9 35.1 89.3 A 22.9 23.5 21.0 70.0 68.9 15.8 N|A N|A 59.5 N/ N/A 60.6 52.9 62.9 57.5 52.9 49.2 54.3 53.9 51.1 5.5 49.7 41.5 41.7 ISP MPS UBI BNL BPER Cariparma Credem Banco BPM Veneto Banca + Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016

Veneto Banca N/A N/A 60.1 82.2

Popolare di Vicenza

N/A N/A 74.6 94.1 161.3 144.5 141.6 8.8 101.4 8 88.8 .1 68 68.1 69.9 65.5 62.6 59.9 58.3 61.0 56.2 59.2 56.4 23.9 24.2 52.4 23.5 21.0 48.6 14.4 14.4 44.4 42.0 14.1 40.1 42.4 41.3 43.0 14.0 A A | / 41.1 34.6 31.9 29.1 31.3 33.2 N|A N 30.5 N/A N 5.5 ISP MPS UBI BNL BPER Cariparma Credem Banco BPM Veneto Banca + Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016 Veneto Banca

Ve n9.7eto B a n ca11.0 25.8 38.5 Veneto Banca P opolar 9.7 e di Vicenza11.0 25.8 38.5

P opolar8.5 9.7 e di Vicenza11.111.0 30.025.8 35.838.5 Popolare di Vicenza 8.5 11.1 30.0 35.8 8.5 11.1 30.0 35.8 36.9 34.8 34.5 36.9 31.7 34.8 34.5 36.9 28.2 34.8 31.7 34.5 24.5 31.7 28.2 23.3 22.1 22.6 21.9 21.6 28.2 24.5 20.3 19.0 23.3 19.2 22.1 22.6 24.5 18.0 21.9 21.6 16.9 17.0 16.0 16.6 16.1 23.3 15.9 20.3 22.1 15.6 22.6 14.8 15.4 19.0 19.2 15.2 14.6 14.5 21.9 21.6 13.7 18.0 13.3 20.3 12.4 12.6 16.9 17.0 16.0 16.6 19.0 16.1 19.2 15.9 11.1 15.6 11.1 14.8 15.4 10.2 18.0 9.0 9.0 15.2 14.6 14.5 16.9 13.7 17.0 16.0 16.6 16.1 13.3 15.9 12.4 15.6 12.6 14.8 15.4 6.3 15.2 11.1 14.6 14.5 6.0 11.1 6.0 5.8 13.7 10.2 9.0 13.3 9.0 12.4 12.6 5.5 11.1 11.1 10.2 9.0 9.0 6.3

UCG ISP MPS 6.0 Banco BPM UBI BNL BPER Cariparma Credem6.0 5.8 Veneto Banca + 5.5 6.3

6.0 Pop Vicenza UCG ISP MPS 6.0 5.8 Banco BPM YE - 2013 YE - 2014 YE - 2015 YE - 2016 UBI BNL BPER 5.5 Cariparma Credem Veneto Banca + Net NPLUCG ratio (%) ISP MPS UBI BNL BPER Cariparma Credem Banco BPM VenetoPop Vicenza Banca + YE - 2013 YE - 2014 YE - 2015 YE - 2016 Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016 Veneto Banca

Ve neto5.7 Banca 6.2 18.3 26.3 Veneto Banca P opolar 5.7 e di Vicenza 6.2 18.3 26.3

P opolar5.1 5.7 e di Vicenza6.0 6.2 21.1 18.3 22.926.3 Popolare di Vicenza 5.1 6.0 21.1 22.9 5.1 6.0 21.1 22.9 24.2 21.7 24.2 19.9 19.3 19.0 24.2 21.7 19.9 21.7 19.3 19.0 16.0 15.8 14.9 14.5 19.9 14.6 13.9 19.3 13.6 19.0 16.0 15.8 14.9 11.5 11.1 14.5 14.6 13.9 10.5 13.6 9.5 9.9 16.0 15.8 10.3 10.4 9.9 9.5 9.7 9.1 14.9 8.4 8.2 9.0 14.5 14.6 8.2 8.2 13.9 8.5 11.5 7.6 13.6 11.1 10.5 6.4 9.5 9.9 6.1 10.3 10.4 6.6 9.9 9.5 6.4 5.3 9.7 9.1 11.5 8.4 8.2 9.0 5.6 11.1 8.2 8.2 8.5 10.5 7.6 9.5 9.9 4.0 10.3 10.4 3.7 3.4 3.4 9.9 9.5 9.7 9.1 8.4 6.4 5.5 8.2 6.1 9.0 6.6 8.2 8.2 6.4 5.3 8.5 7.6 UCG ISP MPS Banco5.6 BPM UBI BNL BPER 6.4 Cariparma Credem

Veneto 6.1 Banca + 4.0 6.6 3.7 3.4 3.4 6.4 5.3 5.5 5.6 Pop Vicenza 4.0 UCG ISP MPS 3.7 3.4 3.4 Banco BPM YE - 2013 YE - 2014 YE - 2015 YE - 2016 UBI BNL BPER 5.5 Cariparma Credem Veneto Banca + UCG ISP MPS UBI BNL BPER Cariparma Credem Banco BPM VenetoPop Vicenza Banca + YE - 2013 YE - 2014 YE - 2015 YE - 2016 Pop Vicenza YearlyYE - 201 Loan3 YELoss - 2014 ProvisionYE - 2015 / NetYE - 201 Interest6 Margin (%) Veneto Banca

Veneto N/A B anca N/A 172.0 401.2 Veneto Banca P opolar N/A e di VicenzaN/A 172.0 401.2 N/A N/A 172.0 401.2 P opolarN/A e di VicenzaN/A 264.6 281.5 Popolare di Vicenza N/A N/A 264.6 281.5 N/A N/A 264.6 281.5 6 366.5 30. 3 330.6 6 366.5 6 30. 366.5 3 330.6 30. 3 3 330.6 26. 2 226.3 3 223.1 3 26. 2 226.3 223.1 26. 164.9 2 226.3 223.1 129.4 135.5 164.9 51.3 115.7 114.3 34.6 41.8 35.0 103.2 29.8 33.1 89.9 35.1 89.3 A 164.9 129.4 22.9 23.5 21.0 135.5 70.0 68.9 15.8 51.3 N|A N|A 59.5 N/ N/A 60.6 52.9 62.9 57.5 115.7 52.9 49.2 54.3 53.9 51.1 114.3 34.6 5.5 49.7 41.8 41.5 41.7 35.0 103.2 29.8 129.4 33.1 135.5 89.9 35.1 89.3 A 51.3 22.9 23.5 21.0 115.7 ISP MPS 70.0 Banco BPM 68.9 114.3 15.8 34.6 UBI BNL BPER Cariparma Credem 41.8

35.0 Veneto Banca + 103.2 29.8 N|A N|A 59.5 N/ N/A 33.1 89.9 35.1 60.6 52.9 62.9 57.5 89.3 52.9 49.2 54.3 53.9 A 51.1 5.5 49.7 41.5 41.7 22.9 23.5 21.0

70.0 Pop Vicenza 68.9 15.8 N|A N|A 59.5 N/ N/A 60.6 52.9 62.9 57.5 52.9 49.2 54.3

ISP MPS 53.9 Banco BPM 51.1

BPER 5.5 UBI BNL49.7 Cariparma Credem 41.5 YE - 2013 YE - 2014 YE - 2015 YE - 2016 41.7 Veneto Banca + ISP MPS UBI BNL BPER Cariparma Credem Banco BPM VenetoPop Vicenza Banca + YE - 2013 YE - 2014 YE - 2015 YE - 2016 Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016 Veneto Banca Net Bad Loans/Equity (%) VeN/Aneto Banca N/A 60.1 82.2 Veneto Banca PN/Aopolar e di N/A Vicenza 60.1 82.2

PN/A opolarN/A e di N/A VicenzaN/A 60.1 74.6 82.2 94.1 161.3 Popolare di Vicenza

144.5 N/A N/A 74.6 94.1 141.6 161.3 N/A N/A 74.6 94.1 161.3 144.5 141.6 144.5 141.6 8.8 101.4 8 88.8 .1 8.8 101.4 68 68.1 8 88.8 69.9 65.5 62.6 8.8 .1 101.4 59.9 58.3 61.0 56.2 59.2 8 88.8 56.4 23.9 24.2 52.4 23.5 21.0 68 68.1 69.9 48.6 14.4 .1 14.4 44.4 42.0 14.1 40.1 42.4 41.3 43.0 14.0 A A 65.5 62.6 | / 41.1 59.9 58.3 61.0 56.2 34.6 31.9 59.2 68 68.1 29.1 69.9 31.3 33.2 56.4 N|A N 30.5 23.9 N/A N 24.2 52.4 23.5 5.5 21.0 65.5 62.6 48.6 14.4 14.4 44.4 59.9 58.3 42.0 61.0 14.1 56.2 40.1 42.4 41.3 43.0 14.0 A 59.2 A 56.4 | 23.9 24.2 / 41.1 52.4 ISP MPS 23.5 Banco BPM 34.6

31.9 BPER

UBI BNL 21.0 Cariparma Credem 29.1 31.3 48.6 Veneto Banca + 33.2 N|A N 30.5 14.4 N/A N 14.4 44.4 42.0 14.1 40.1 42.4 41.3 43.0 14.0 A A 5.5 | / 41.1 Pop Vicenza 34.6 31.9 29.1 31.3 33.2 N|A N 30.5 N/A ISP MPS Banco BPM N YE - 2013 YE - 2014 YE - 2015 YE - 2016 UBI BNL BPER 5.5 Cariparma Credem Veneto Banca + ISP MPS UBI BNL BPER Cariparma Credem Banco BPM VenetoPop V Bicenzancaa + YE - 2013 YE - 2014 YE - 2015 YE - 2016 Pop Vicenza YE - 2013 YE - 2014 YE - 2015 YE - 2016

Source: PwC analysis on data provided by Servicers as of H1-2016 PwC | 55 Contacts List / Contributors

Pier Paolo Masenza Fedele Pascuzzi Financial Services Deals Leader Business Recovery Services Leader [email protected] [email protected]

Vito Ruscigno Alessandro Biondi Co-Head of NPL Co-Head of NPL [email protected] [email protected]

Gianluigi Benetti Antonio Martino Financial Services Real Estate Deals Leader Deals Strategy Leader [email protected] [email protected] Matteo D’Alessio Gabriele Guggiola Financial Services Deals Partner Regulatory Deals Leader [email protected] [email protected]

56 | The Italian NLP market - The Place To Be Portfolio Advisory Group

Austria Greece Serbia Jens Roennberg Thanassis Panopoulos Marko Fabris Christina Zarifi +49 699 585 2226 +30 210 687 4628 +38 111 330 2137 +44 20 7213 2045 [email protected] [email protected] [email protected] [email protected]

Bernhard Engel Hungary Spain Natasha Firman +43 150 188 1160 Csaba Polacsek Jaime Bergaz +44 20 7212 3453 [email protected] +36 14 619 751 +34 915 684 589 [email protected] [email protected] [email protected] Bulgaria North America Bojidar Neytchev Ireland Guillermo Barquin Mitchell Roschelle +35 929 355 288 Aidan Walsh +34 915 685 773 +1 646 471 8070 [email protected] +35 317 926 255 [email protected]. [email protected] [email protected] com CEE Asia Pacific Petr Smutny Italy Pablo Martinez-Pina Ted Osborn +42 025 115 1215 Pierpaolo Masenza +34 915 684 370 +85 222 892 299 [email protected] +39 065 7025 2483 [email protected] [email protected] [email protected] Edward Macnamara Richard Garey Chiara Lombardi +42 731 635 089 Fedele Pascuzzi +34 915 684 156 +65 6236 3703 [email protected]. +39 028 064 6323 [email protected] [email protected] com [email protected] Sweden James Dilley Croatia Vito Ruscigno Per Storbacka +85 222 892 497 Sinisa Dusic +39 02 8064 6333 +46 855 533 132 [email protected] +38 516 328 844 [email protected] [email protected] [email protected] Huong Dao Thi Thien Alessandro Biondi Turkey [email protected] Cyprus +39 02 7785213 Serkan Tamur Stelios Constantinou [email protected] +90 212 376 5312 Lee Chui Sum +35 725 555 190 [email protected] +60(3) 2173 1188 [email protected] The Netherlands [email protected] Peter Wolterman Kadir Köse Czech Republic and Slovakia +31 887 925 080 +90 212 355 5323 Michael Fung Petr Smutny [email protected] [email protected] [email protected] +42 025 115 1215 [email protected] Wilbert van den Heuvel Ukraine Masaya Koto +31 887 923 816 Oleg Tymkiv +81 906 512 4999 Denmark [email protected]. +38 044 4906 773 [email protected] Bent Jørgensen com [email protected] +45 39 459 259 Latin America [email protected] Jessica Lombardo United Kingdom Nico Malagamba +31 887 925 060 Richard Thompson +55 119 9976 4250 France [email protected] +44 20 7213 1185 [email protected] Hervé Demoy [email protected] +33 156 577 099 Norway Middle East [email protected] Lars Johansson Robert Boulding Matthew Wilde +47 48 161 792 +44 20 7804 5236 +971 4 304 3984 Germany [email protected] [email protected] [email protected] Christopher Sur +49 699 585 2651 Poland Ben May [email protected] Pawel Dzurak +44 20 7212 3664 +48 227 464 697 [email protected] Thomas Veith [email protected] +49 699 585 5905 Panos Mizios [email protected] Portugal +44 20 7804 7963 Antonio Rodrigues [email protected] Jörg Jünger +35 121 359 9181 +49 699 585 2707 [email protected] [email protected]

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