Qualitative information

General aspects.

The banking group currently operates in the following fields:

  • Short-term trade receivable financing and acquisition of receivables due from the Public Administration (Factoring operations)
  • Corporate lending and structured finance (Lending operations)
  • Finance and operating leases (Leasing operations)
  • Unsecured loans to retail entrepreneurs
  • Purchasing and managing non-performing loan portfolios
  • Purchasing and managing tax receivables

At the end of 2016, Banca IFIS acquired the former GE Capital Interbanca Group and expanded its core business to corporate lending, structured finance, and finance and operating leases. The clients of the corporate lending and structured finance segments are usually corporations. The receivables portfolio of the company operating in the leasing segment is highly granular, with a limited number of exposures concentrated on individual clients. It serves entities with different legal forms, including corporations, partnerships, co-operatives, and sole proprietorships.

The factoring business is characterised by the direct assumption of risks related to granting advances and loans, as well as guarantees, if any, on trade receivables of mainly small- and medium-sized enterprises. As part of its operations, the factoring segment purchases receivables due from public health service and local authorities outright.

Concerning the acquisition of distressed financial (Distressed Retail Loans, i.e. non-performing loans), trade and tax receivables, the sellers are usually banks, financial institutions, insolvency proceedings, and businesses.

Given the particular business of the Group’s companies, credit risk is the most important element to consider as far as the general risks assumed by the Group are concerned. Maintaining an effective credit risk management is a strategic objective for the Banca IFIS Group, pursued by adopting integrated tools and processes that ensure proper credit risk management at all stages (preparation, lending, monitoring and management, and interventions on troubled loans).

In 2016 there were no new significant transactions in Italian government bonds. At the end of 2016, the securities portfolio's overall average residual life was approximately 15 months, and the maximum duration per individual asset was 40 months.

The Banca IFIS Group does not carry out any operation involving credit derivatives.

 

Credit risk management policies.

Organisational aspects

Credit risks in financing operations through Factoring, Lending and Leasing directly arise from financing the business customers and guaranteeing them, when requested, against default. Credit risk management takes place during two specific phases of the credit process: the initial credit assessment phase and, in case of a positive outcome, throughout the entire relationship with the customers. In order to increase the quality of its receivables portfolio, Banca IFIS deemed it appropriate to centralise the main phases related to risk taking and control as part of factoring operations in the Bank's Head Office, allowing for a high degree of homogeneity in lending operations and to strictly monitor individual positions through the specialisation of resources and separation of functions at all decision-making levels. In carrying out their operations, the subsidiaries Interbanca and its subsidiaries, as well as the Polish subsidiary IFIS Finance, can independently take certain decisions within the operational and organisational limits defined by the Parent Company Banca IFIS.

The first stage of the risk management process involves an organisational structure responsible for assessing the creditworthiness of borrowers. A multi-level system of delegations and decision-making powers allows the most senior analysts to assume increasingly growing, but still modest, risks. Greater risks can be taken by Area or Business Unit managers. As for higher amounts, powers are attributed solely to the Committee or bodies with management or strategic supervision functions.

Banca IFIS spa’s branches do not have decision-making powers as for the assumption of credit risk. Rather, they have the responsibility of doing business in the local area and managing relationships with customers. Therefore, within the limits and with the procedures established by the Head Office’s competent bodies, Branches manage ordinary operations with customers under the constant monitoring of the central structures.

At the Group's various companies, qualified and specialised staff follow all stages of a relationship: from the administrative management of the receivables to their collection, from the identification of anomalies, if any, to the verification and definition of the most appropriate actions to recover the debt.

As already specified, the Banca IFIS Group purchases also distressed receivables in the following business areas:

  • tax receivables usually acquired from insolvency proceedings and due from tax authorities;
  • financial receivables acquired from consumer credit companies, banks and leasing companies;
  • trade receivables acquired from insolvency proceedings and companies.

Purchasing the different types of receivables is a fundamental aspect of the credit process. Prior to this phase, highly-skilled analysts carry out a thorough due diligence of the portfolio being transferred and the relevant organisational impact. Once the due diligence is completed, the Group sets the terms and conditions for offering/acquiring the receivables portfolio and how to manage it (individual or collective method), assessing the relevant impact on operating structures.

In order to collect distressed retail loans (NPL Area receivables), the Banca IFIS Group relies on an in-house legal office, a widespread and tested network of credit collection companies operating throughout Italy, and a network of agents. This structure, together with several lawyers located near the courts, ensures the utmost flexibility as well as effective and timely actions to recover all types of receivables.

The Banca IFIS Group pays particular attention to the concentration of credit risk with reference to all the Group’s companies, both at an individual and consolidated level. Banca IFIS’s Board of Directors has delegated the Top Management to take action to contain major risks. In line with the Board of Directors’ instructions, all positions at risk which significantly expose the Group, even if amounting to less than 10% of regulatory capital, are systematically monitored. In addition, the single-name concentration risk is monitored at the Group level through the Granularity Adjustment (GA). The algorithm used to calculate the Granularity Adjustment is the one defined in Annex B, Title III of Circular no. 285 of 17 December 2013.

 

Management, measurement and control systems

As part of financing operations through Factoring, Lending and Leasing, credit risk is constantly monitored by means of procedures and instruments allowing to rapidly identify particular anomalies.

Banca IFIS has instruments and procedures in place allowing to specifically evaluate and monitor risks for each credit facility. In particular:

  • it assesses the creditworthiness of the counterparties involved in the financing transaction;
  • it identifies the risk in each individual financing transaction;
  • it sets an adequate pricing for each class of risk right from the initial commercial analysis of the feasibility of the transaction.

Following a positive assessment and after starting to work with the customer, the bank continues to monitor the relevant credit risk using selected databases. The lending decision always takes into account the overall exposure to the counterparty (or related groups, if any).

As for Lending operations, loans to customers are monitored by the relevant areas, which are responsible for constantly and pro-actively monitoring borrowers based on:

  • the review of credit positions
  • the assessment of compliance with contractual covenants
  • the overall monitoring of risk factors that could affect the borrower's ability to repay the loan.

As for Leasing operations, in 2011 the sector activated an automated universal data (AUD) system that can propose an outcome to the credit analyst, supporting him or her in making a decision. Concerning the Auto Leasing portfolio, the sector also analyses the quality of sales channels in order to divide the network of agents into clusters and adequately price future volumes.

As for the operations of the NPL Area and the purchases of tax receivables arising from insolvency proceedings, in order to ensure increasingly efficient control over the operations undertaken, the Group has continued to invest in IT systems dedicated to monitoring those portfolios. 

Purchases of distressed retail loans are particularly significant. Those loans are classified as from their acquisition under non-performing exposures. These are financial receivables (purchased from consumer credit companies, banks and leasing companies) and, to a lesser extent, trade receivables (acquired from insolvency proceedings and companies) which, in light of the characteristics of the receivable and the invoice seller, are duly classified in portfolios homogeneous in terms of management and collection methods (judicial and non-judicial). In particular, the Bank implements the following methods:

  • collective management, characterised by non-judicial collection operations carried out mainly by specialist collection agencies, the network of professionals-agents, and the call centre;
  • individual management, characterised by judicial collection operations.

As for the credit risk associated with the bond portfolio, which consists exclusively of Italian government bonds, the Banca IFIS Group constantly monitors the credit quality. The Risk Management function periodically reports to the bank's Board of Directors and Top Management on the composition of the bond portfolio.

As for Basel 2 principles for calculating capital requirements against first-pillar credit risks, Banca IFIS chose to adopt the Standardised Approach.

 

Credit risk mitigation techniques

As part of factoring operations, when the type and/or quality of factored receivables do not fully satisfy requirements or, more generally, the invoice seller is not sufficiently creditworthy, the bank’s established practice is to hedge the credit risk assumed by the Group by obtaining additional surety bonds from the shareholders or directors of the invoice seller.

As for the account debtors in factoring relationships, wherever the Bank believes that the elements available to assess the account debtor do not allow to properly measure/assume the related credit risk, or the proposed amount of risk exceeds the limits identified during the debtor’s assessment, the Bank adequately hedges the risk of default of the account debtor. Guarantees issued by correspondent factors and/or insurance policies underwritten with specialised operators are the main hedge against non-domestic account debtors in non-recourse operations.

As for the Lending sector, based on the peculiarities of its products, it demands adequate collateral according to the counterparty's standing as well as the term and type of the facility. Said collateral includes mortgage guarantees, liens on plant and equipment, pledges, surety bonds, credit insurance, and collateral deposits.

As for Finance Leases, the credit risk is mitigated by the leased asset. The lessor maintains the ownership until the purchase option is exercised, ensuring a higher recovery rate in the event the client defaults.

As for operations concerning distressed loans (NPL Area receivables and purchases of tax receivables arising from insolvency proceedings) and the relevant business model, generally no action is taken to hedge credit risks.

 

Non-performing exposures

Non-performing loans are classified essentially according to the Bank of Italy's criteria.

Concerning factoring operations, the relevant Head Office units constantly monitor clients. If the situation deteriorates or problems emerge, the Troubled Loans Area takes over the management of the exposures. Based on available information, it also considers whether or not to classify the counterparty as unlikely to pay or bad loan. Managing non-performing exposures, either unlikely to pay or bad loans, normally

falls under the responsibility of the Troubled Loans Area, which takes the most appropriate actions to hedge and recover debts, periodically reporting to the Top Management and the Board of Directors. Individual value adjustments, upon proposal by the Troubled Loans Area, are assessed by the Top Management and submitted to the Board of Directors for approval.

A similar process is formally in place also for IFIS Finance Sp. Z o. o.. Nonetheless, it should be noted that the subsidiary has only a marginal amount of non-performing exposures.

Concerning Lending, Workout & Credit Recovery, this ensures that the classifications of distressed receivables in the risk categories established by supervisory provisions and recognised as non-performing exposures are regularly updated. The Bank manages non-performing loans by:

  • taking any action considered necessary to collect debts, hiring independent attorneys together with the Legal & Regulatory function if required.
  • taking any non-judicial action considered necessary to collect the debt, including selling and restructuring the loans.

In this regard, the Bank performs the impairment test using the DCF (Discounted cash flow) method in the case of distressed borrowers that are still operational, or the LV (Liquidation value) method when the value of collateral represents a certain source of recovery. The Bank regularly updates the value of the mortgage based on independent appraisals adjusted to account for any losses arising from the realisation.

Concerning Leasing operations, the debt collection process is handled by the Collection office, which, after consulting with the Banking Group's various Business Units in the case of common clients, identifies the positions to be classified as bad loans among the entities with one of the contractual statuses established by internal policies.

Virtually all of NPL area receivables are classified under non-performing exposures. Purchasing receivables at amounts well below their par value and the fact that cash flows are generally higher than the price paid minimise the risk of losses.

As for non-performing exposures purchased and not yet collected, the overall outstanding book value of the portfolio is approximately 9.659 million Euro, considering the sales completed at the end of the year. At the time of purchase, the historical book value of these receivables was approximately 9.846 million Euro, and they were acquired for approximately 479 million Euro, i.e. an average price equal to approximately 4,3% of the historical book value. In 2016, approximately 3.091 million Euro were acquired for approximately 195 million Euro, i.e. an average price equal to 6,63%. The overall portfolio of non-performing exposures purchased and not yet collected has an overall weighted average life of around 24 months compared to their acquisition date.

Furthermore, it should be noted that overall at the end of 2016 there were approximately 102 million Euro in outstanding bills of exchange (the amount does not include, for instance, nearly 366 million Euro in outstanding settlement plans).

In January, June, July, August and December 2016, the bank completed five sales of portfolios to leading players whose business is purchasing NPLs. Overall, Banca IFIS sold receivables with an outstanding book value of nearly 1,6 billion Euro, consisting of approximately 233 thousand position, for an overall consideration of about 112 million Euro.

The figures at 31 December 2016 do not include the receivables involved in one of the sales completed at the end of December, when the Bank accepted the buyer's binding offer, with an outstanding par value of approximately 744 million Euro. The sale was finalised on 16 January 2017.

Concerning the changes in amortised cost other than impairment related to the bad loans of the NPL segment, in 2015 the Bank started classifying them no longer under item 130 Net impairment losses/reversals on receivables, but rather under item 10 Interest income.

Future cash flows from non-judicial operations are simulated using a statistical model, based on the proprietary portfolio's historical evidence, segmented by different drivers (the model is based on curves of breakdown over time calculated using proprietary historical technical bases). During 2015, the Bank reviewed the cash flow simulation model, as debt collection operations have significantly changed over the years. The revised model uses updated historical time series (2000-2015) and ensures that different types of collection instruments with similar characteristics are treated consistently. In addition, it allows to greatly reduce processing times.

As for individual operations, the cash flows are partly the result of the collection estimated by the manager and, only for the positions for which a court has issued a garnishment order, are calculated using a statistical model based on the data gathered from the proceedings. As in the case of collective operations, these estimates account for credit risk.

Quantitative information

The gross exposures reported in the following tables account for the positive impact of the breakdown of the difference between the fair value as measured in the business combination and the carrying amount of the receivables recognised by the subsidiaries over time.

A. Credit quality

A.1 Non-performing and performing loans: amounts, impairment losses, trend, economic and geographical distribution

A.1.1 Distribution of financial assets by portfolio and credit quality (book values)

Portfolio/Quality Bad loansUnlikely to payNon-performing past due exposuresPerforming past due exposuresPerforming exposures Total
1, Available for sale financial assets    353,151353,151
2, Held to maturity financial assets     -
3, Due from banks   1,9011,391,4571,393,358
4, Loans to customers385,746448,975137,440360,7644,595,2875,928,212
5, Financial assets at fair value     -
6, Financial assets under disposal     -
Total 31.12.2016385,746448,975137,440362,6656,339,8957,674,721
Total 31.12.2015 190,286234,54658,214883,4055,382,8696,749,320

Equity securities and UCITS units are not included in this table.

   

A.1.2 Distribution of exposures by portfolio and credit quality (gross and net amounts)

Portfolio/Quality Non-performing loans Performing loans Total (net exposure)
  Gross exposure Specific value adjustments Net exposure Gross exposure Portfolio value adjustments Net exposure  
               
1, Available for sale financial assets 15,077 15,077 - 353,151 - 353,151 353,151
2, Held to maturity financial assets - - - - - - -
3, Due from banks - - - 1,393,374 16 1,393,358 1,393,358
4, Loans to customers 1,928,431 956,270 972,161 5,003,316 47,265 4,956,051 5,928,212
5, Financial assets at fair value - - - X X - -
6, Financial assets under disposal - - - - - - -
Total 31.12.2016 1,943,508 971,347 972,161 6,749,841 47,281 6,702,560 7,674,721
Total 31.12.2015 727,780 244,734 483,046 6,277,698 11,424 6,266,274 6,749,320
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Equity securities and UCITS units are not included in this table. 

In compliance with paragraph 37, letter a) of IFRS 7 “Financial Instruments: Disclosures”, here below is the maturity analysis for past due amounts relating to performing loans – Other loans.

(in thousands of Euro)31.12.201631.12.2015
Past due up to 3 months148,661387,750
Past due > 3 months < 6 months38,021159,771
Past dye > 6 months < 1 year49,211112,691
Past due > 1 year124,870224,403
Total 360,763 884,615
 

A.1.3 Banking group - On- and off-balance-sheet exposures to banks: gross and net amounts and past due buckets

Types of loans/amounts Gross exposureSpecific net value adjustmentsPortfolio value adjustmentsNet exposure
 Non-performing loansPerforming loans   
 up to 3 monthsOver 3 to 6 monthsOver 6 months to 1 yearOver 1 year    
A, ON-BALANCE-SHEET EXPOSURES         
a) Bad loans----X-X-
- of which: forborne exposures----X-X-
b) Unlikely to pay----X-X-
- of which: forborne exposures----X-X-
) Non-performing past due exposures----X-X-
- of which: forborne exposures----X-X-
d) Performing past due exposuresXXXX-X--
- of which: forborne exposuresXXXX-X--
e) Other performing exposures-XX-1,391,146X-1,391,146
- of which: forborne exposuresXXXX X- 
Total A ----1,391,146--1,391,146
B, OFF-BALANCE-SHEET EXPOSURES         
a) Non-performing----XXX
b) Performing-XX-6,864X-6,864
Total B ----6,864--6,864
TOTAL A+B----1,389,010--1,389,010

On-balance-sheet exposures include all on-balance-sheet financial assets due from banks, regardless of the portfolio they are included in (held for trading, available for sale, held to maturity, loans and receivables etc.).

A.1.6 Banking group - On- and off-balance-sheet exposures to customers: gross and net amounts and past due buckets

Types of loans/amountsGross exposureSpecific net value adjustmentsPortfolio value adjustmentsNet exposure
 Non-performing loansPerforming loans   
 up to 3 monthsOver 3 to 6 monthsOver 6 months to 1 yearOver 1 year    
A, ON-BALANCE-SHEET EXPOSURES         
a) Bad loans167,560115,856939,674X737,534X385,557
- of which: forborne exposures11,77787,929X58,130X41,576
b) Unlikely to pay189,2232,54024,987421,797X189,628X448,919
- of which: forborne exposures135,491 11,209140,748X116,192X171,256
) Non-performing past due exposures97,95410,5756,06839,168X18,237X135,529
- of which: forborne exposures1,471X15X1,456
d) Performing past due exposuresXXXX366,357X5,594360,763
- of which: forborne exposuresXXXX X
e) Other performing exposuresXXXX4,874,252X39,1934,835,059
- of which: forborne exposuresXXXX44,265X1,42742,838
Total A 454,73713,11646,9111,400,6395,240,609945,39944,7876,165,827
B, OFF-BALANCE-SHEET EXPOSURES         
a) Non-performing52,831X17,633X35,198
b) PerformingXXXX419,361X159419,202
Total B 52,831---419,36117,633159454,400
TOTAL A+B507,56813,11646,9111,400,6395,659,970963,03244,9466,620,227
 

On-balance-sheet exposures include all on-balance-sheet financial assets due from customers, regardless of the portfolio they are included in (available for sale, held to maturity, loans and receivables).     

A.1.7 Banking group - On-balance-sheet exposures to customers: trends in gross non-performing exposures

Type/CategoriesBad loansUnlikely to payPast due loans
    
A, Opening gross exposure414,740253,25259,788
- of which: transferred and not derecognised---
B, Increases925,835678,549578,056
B,1 inflows from performing loans67234,168460,111
B,2 transfers from other non-performing loan categories65,12238,01815
B,3 other increases316,832266,50770,811
Business combinations543,209339,85647,119
C, Reductions217,484293,254484,078
C,1 outflows to performing loans66638299,694
C,3 derecognitions25,42921,7061,317
C,3 collections61,028100,400106,305
C,4 collections from sales21,0679,037-
C,5 losses on disposal---
C,4 transfers to other non-performing loan categories1,22062,18339,740
C,5 other reductions108,67499,29037,022
D, Closing gross exposure1,123,091638,547153,766
- of which: transferred and not derecognised---
 

On-balance-sheet exposures include all on-balance-sheet financial assets due from customers, regardless of the portfolio they are included in (available for sale, held to maturity, loans and receivables).

Total net non-performing exposures amounted to 972,2 million Euro, compared to 483,0 million Euro at the end of 2015 (+94,7%).

Total bad loans to customers at 31 December 2016, net of value adjustments, totalled 385,7 million Euro, against 190,3 million Euro at 31 December 2015 (+102,7%). The change was essentially due to the purchases made by the NPL Area during the year; the Trade Receivables segment reported a 2,4% increase. The net bad loans of the new Corporate Banking and Leasing sectors totalled 27,3 and 6,2 million Euro, respectively.

At 31 December 2016, unlikely to pay amounted to 449,0 million, compared to 234 million Euro in 2015 (+91,4%), of which 241,5 million Euro related to the NPL Area (+23,9 million Euro from the end of 2015), 124,7 million Euro to the Corporate Banking sector, and 13,6 million Euro to the Leasing sector. The Trade Receivables segment's unlikely to pay were up 28,7%.

Net non-performing past due exposures totalled 137,4 million Euro at 31 December 2016, compared with 58,2 million Euro in December 2014 (+136,1%). The increase was largely attributable to past due loans due from the Public Administration that were purchased outright, rising from 1,2 million Euro at the end of 2015 to 46,8 million Euro at the end of 2016. Changes in non-performing past due exposures are part of Banca IFIS's business model. In addition, the Leasing and Corporate Banking sectors reported 17,4 million Euro and 1,7 million Euro worth of past due loans, respectively.   

A.1.7 Banking group - On-balance-sheet exposures to customers: trends in gross forborne exposures broken down by credit quality

Type/CategoriesForborne exposures: non-performingForborne exposures: performing
   
A, Opening gross exposure60,8932,977
- of which: transferred and not derecognised--
B, Increases417,50454,246
B,1 inflows from non-forborne performing exposures3,07989
B,2 inflows from forborne performing exposures-X
B,3 inflows from non-performing forborne exposureX321
B,4 other increases149,33913,789
Business combinations265,08640,047
C, Reductions89,77212,958
B,1 outflows to non-forborne performing exposuresX-
B,2 outflows to forborne performing exposures321X
B,3 outflows to non-performing forborne exposureX-
C,4 derecognitions1-
C,5 collections48,46012,441
C,6 collections from sales10,456-
C,7 losses on disposal--
C,8 other reductions30,534517
D, Closing gross exposure388,62544,265
- of which: transferred and not derecognised--
       

A.1.8 Banking group - On-balance-sheet exposures to customers: trends in overall impairment losses/reversals

Type/Categories Bad loans Unlikely to pay Non-performing past due exposures
  Total Of which forborne exposures Total Of which forborne exposures Total Of which forborne exposures
A, Opening balance of total impairment losses/ reversals of impairment losses 224,45488518,7065,4061,574144
- of which: transferred and not derecognised------
B, Increases 534,98457,539194,656112,23621,36515
B,1 Impairment losses18,1616,24322,1946,481158-
B,2 losses on disposal------
B,3 transfers from other non-performing loan categories13,1382,6049051442,624-
B,4 other increases1,4363,01621562240-
Business combinations502,24945,676171,342105,54918,34315
C, Reductions 21,90429423,7341,4504,702144
C,1 impairment reversals from measurement2,38373,5942253-
C,2 impairment reversals from collection1091918686111-
C,3 gains on disposal------
C,4 derecognitions18,485-2,92313,566-
C,5 transfers to other non-performing loan categories748-15,4242,604495144
C,6 other reductions1792681,6071,065277-
D, Closing balance of total impairment losses/ reversals of impairment losses 737,53458,130189,628116,19218,23715
- of which: transferred and not derecognised      
           

A.2 Classification of exposures based on external and internal ratings

A.2.1 Distribution of on- and off-balance-sheet exposures by class of external rating

For the purposes of calculating capital requirements against credit risk, the Banca IFIS Group uses the external credit assessment institution (ECAI) Fitch Ratings exclusively for the positions categorised within “Exposures to Central Governments and Central Banks” of Banca IFIS, and the ratings agency Moody's for the positions categorised within “Exposures to Central Governments and Central Banks” of the former GE Capital Interbanca Group; no external ratings are used for the other asset classes. In light of the composition of the Group’s assets, external ratings are used exclusively for the portfolio of government bonds.

   

A.2.2 Distribution of on- and off-balance-sheet exposures by class of internal rating

The Bank does not use internal ratings for the purposes of calculating capital absorption. Banca IFIS spa has implemented an Internal Rating System for domestic businesses, which was developed using proprietary databases and consists of:

  • a “financial” module, to assess the company's operating/financial soundness;
  • a “central credit register” module, presenting the evolution of counterparty risk vis-à-vis the banking industry;
  • an “internal performance” module, monitoring the performance of the factoring relationships between the counterparty and the Bank—especially as far as the account debtor is concerned.

   

A.3 Distribution of guaranteed exposures by guarantee type

A.3.2 Banking group - Guaranteed exposures to customers

  Net exposure Collateral guarantees (1)  Personal guarantees (2)  
      Credit derivatives Unsecured loans  
            CLN Other derivatives         Total (1)+(2)
    Property Mortgages Property Finance Leases Securities Other collateral guarantees   Governments and central banks Other public entities Banks Other entities Governments and central banks Other public entities Banks Other entities  
 1, Guaranteed on-balance-sheet exposures: 1,156,982 533,463 - 21,863 101,675 - - - 65,634 - - - 3,310 273,338 999,283
1,1 totally guaranteed 870,723 506,315 - 8,124 63,747 - - - 65,634 - - - 3,310 221,392 868,522
- of which non-performing 139,137 97,996 - 120 3,094 - - - - - - - - 37,926 139,136
1,2 partially guaranteed 286,259 27,148 - 13,739 37,928 - - - - - - - - 51,946 130,761
- of which non-performing 54,395 11,430 - 67 3,093 - - - - - - - - 13,556 28,146
2, Guaranteed off-balance-sheet exposures: 23,711 1,500 - 3,498 21 - - - - - - - - 3,662 8,681
2,1 totally guaranteed 7,668 1,172 - 2,836 - - - - - - - - - 3,659 7,667
- of which non-performing 3,666 15 - - - - - - - - - - - 3,651 3,666
2,2 partially guaranteed 16,043 328 - 662 21 - - - - - - - - 3 1,014
- of which non-performing 10,891 - - - 17 - - - - - - - - 3 20
       

B. Concentration and distribution of exposures

B.1 Banking group - Distribution of on- and off-balance-sheet exposures to customers by segment (book value)

Exposures/counterpartiesGovernmentsOther public entitiesFinancial institutionsInsurance companiesNon-financial companiesOther entities
 Net exposureSpecific impairment losses/reversalPortfolio impairment losses/reversalNet exposureSpecific impairment losses/reversalPortfolio impairment losses/reversalNet exposureSpecific impairment losses/reversalPortfolio impairment losses/reversalNet exposureSpecific impairment losses/reversalPortfolio impairment losses/reversalNet exposureSpecific impairment losses/reversalPortfolio impairment losses/reversalNet exposureSpecific impairment losses/reversalPortfolio impairment losses/reversal
                   
A, On-balance-sheet exposures                   
A,1 Bad loans--X3,6952,162X1,17849,874X--X75,974623,747X304,71061,751X
- of which forborne exposures  X  X1,0328,010X  X7,78050,120X32,764 X
A,2 Unlikely to pay332146X2,862627X28,8537,042X--X166,710161,958X250,16219,855X
- of which forborne exposures  X2,161621X2,4072,578X  X113,920112,993X52,768 X
A,3 Non-performing past due exposures11,1523X35,67410X3613X--X75,7386,519X12,92811,692X
- of which forborne exposures  X  X  X  X1,45615X  X
A,4 Performing exposures448,162X33799,917X12172,205X927-X-3,495,400X32,464380,138X11,242
- of which forborne exposures  X  X  X  X 42,852X1,413 X 
Total A 459,64614933842,1482,799121102,27256,929927---3,813,823792,22432,464947,93893,29811,242
B, Off-balance-sheet exposures                   
B,1 Bad loans--X--X201-X--X--X--X
B,2 Unlikely to pay--X--X-13,292X--X25,0604,341X--X
B,3 Other non-performing exposures--X--X--X--X9,937-X--X
A,4 Performing exposures-X-589X-42,150X-56X-460,324X159328X-
Total B ---589--42,35113,292-56--495,3214,341159328--
Total (A+B) 31,12,2016459,64614933842,7372,799121144,62370,22192756--4,309,144796,56532,623948,26693,29811,242
Total (A+B) 31,12,2015 3,321,9618432902,3322,506761137,2113,83047---2,261,542228,39710,505359,4049,91797
       

B.2 Banking group - Geographical distribution of on- and off-balance-sheet exposures to customers (book value)

Exposures/Geographic areasItalyOther European countriesAmericaAsiaRest of the World
 Net exposureOverall impairment losses/reversalsNet exposureOverall impairment losses/reversalsNet exposureOverall impairment losses/reversalsNet exposureOverall impairment losses/reversalsNet exposureOverall impairment losses/reversals
A, On-balance-sheet exposures          
A,1 Bad loans384,561733,0108303,1901052-1541,329
A,2 Unlikely to pay444,605180,4114,1556,3091522,908--7-
A,3 Non-performing past due exposures134,41418,2371,115-------
A,4 Performing exposures4,921,96442,167199,43555559,8881,93913,8891236463
Total A5,85,544973,825205,53510,05460,0504,85213,8911238071,332
B, Off-balance-sheet exposures          
B,1 Bad loans201---------
B,2 Unlikely to pay25,0604,342-13,291------
B,3 Other non-performing exposures9,937---------
A,4 Performing exposures355,58215962,707-18-787-53-
Total B390,7804,50162,70713,29118-787-53-
Total (A+B) 31.12.20166,276,324978,326268,24223,34560,0684,85214,6781238601,332
Total (A+B) 31.12.2015 6,796,801250,609177,8475,506795105,957306903
         

B.3 Banking group – Geographical distribution of on- and off-balance-sheet exposures to banks (book value)

Exposures/Geographic areas Italy Other European countries America Asia Rest of the World
  Net exposure Impairment losses/reversal Net exposure Impairment losses/reversal Net exposure Impairment losses/reversal Net exposure Impairment losses/reversal Net exposure Impairment losses/reversal
                     
A, On-balance-sheet exposures                    
A,1 Bad loans - - - - - - - - - -
A,2 Unlikely to pay - - - - - - - - - -
A,3 Non-performing past due exposures - - - - - - - - - -
A,4 Performing exposures 1,350,332 - 24,831 - 15,983 - - - - -
Total A 1,350,332 - 24,831 - 15,983 - - - - -
B, Off-balance-sheet exposures                    
B,1 Bad loans - - - - - - - - - -
B,2 Unlikely to pay - - - - - - - - - -
B,3 Other non-performing exposures - - - - - - - - - -
A,4 Performing exposures 740,828 - 1,479 - - - - - - -
Total B 740,828 - 1,479 - - - - - - -
Total (A+B) 31.12.2016 2,091,160 - 26,310 - 15,983 - - - - -
Total (A+B) 31.12.2015 85,062 - 13,345 - 619 - - - - -
 

B.4 Major exposures

  31.12.201631.12.2015
a)Carrying amount2,391,8483,552,701
b)Weighted amount660,238195,918
c)Number45
 

The overall weighted amount of major exposures at 31 December 2016 consisted of 272,2 million Euro in loans to customers and 388,0 million Euro in tax assets.

     

Disclosure regarding Sovereign Debt

On 5 August 2011, CONSOB (drawing on ESMA document no. 2011/266 of 28 July 2011) issued Communication no. DEM/11070007 on disclosures by listed companies of their exposures to sovereign debt and market performance, the management of exposures to sovereign debt, and their operating and financial impact.

In compliance with the provisions of the aforementioned communication, it should be noted that at 31 December 2016 the book value of exposures to sovereign debt(1) represented by debt securities was 353,2 million Euro, and consisted entirely of Italian government bonds; these securities, with a par value of 350 million Euro, are classified under Available for sale (AFS) financial assets and included in the banking book; the weighted residual average life of these securities is approximately fifteen months.

The fair values used to measure the exposures to sovereign debt at 31 December 2016 are considered level 1, and the exposures concerned were not impaired at that date. For further details on the measurement method applied and the classification, please refer to the sections on Accounting policies and Information on the consolidated statement of financial position.

Pursuant to the CONSOB Communication, besides the exposure to sovereign debt, it is also necessary to consider receivables due from the Italian National Administration, which at 31 December 2016 totalled 948,6 million Euro, with 106,5 million Euro due from the “central government” (of which 75 million Euro relating to tax receivables) and 842,1 million Euro due from “other public bodies”.

The valuation reserve, gross of the tax effect related to the overall position in Italian government bonds, went from a positive 1,4 million Euro (0,9 million Euro net of the tax effect) at the end of first half of 2016 to a positive value of approximately 1.0 million Euro at 16 March 2017 (0.7 million Euro net of the tax effect).

(1) As indicated in the ESMA document, ‘exposures to sovereign debt’ refer to bonds issued by, and loans given, to central and local government and governmental bodies.

   

C. Securitisation transactions

C.1 Securitisation transactions

Qualitative information

IFIS ABCP Programme securitisation

On 7 October 2016, Banca IFIS launched a three-year revolving securitisation of trade receivables due from account debtors. After Banca IFIS (originator) initially reassigned the receivables for 1.254,3 million Euro, the vehicle named IFIS ABCP Programme S.r.l. issued 850 million Euro worth of senior notes subscribed for by the investment vehicles owned by the banks that co-arranged the transaction. An additional tranche of senior notes, with a maximum par value of 150 million Euro—of which investors initially subscribed for 19,2 million Euro, and that was subsequently adjusted based on the composition of the assigned portfolio—was subscribed for by Banca IFIS, which will use them as collateral in refinancing operations with third parties. The difference between the value of the receivables portfolios and the senior notes issued represents the credit granted to the notes’ bearers, which consists in a deferred purchase price.

The transaction was arranged in order to raise part of the funding for the acquisition of the former GE Capital Interbanca Group.

Banca IFIS acts as servicer, performing the following tasks:

  • following collection operations and monitoring cash flows on a daily basis;
  • reconciling the closing balance at every cut off date;
  • verifying, completing and submitting the service report with the information on the securitised portfolio requested by the vehicle and the banks at every cut off date.

As part of the securitisation programme, the Bank sends the amount it collects to the vehicle on a daily basis, while the new portfolio is assigned approximately four times each month; this ensures a short time lapse between the outflows from the Bank and the inflows associated with the payment of the new assignments.

Only part of the securitised receivables due from account debtors are recognised as assets—especially for the portion that the Bank has purchased outright, resulting in the transfer of all risks and rewards to the buyer. Therefore, the tables in the quantitative disclosure show only this portion of the portfolio.

In compliance with IASs/IFRSs, currently the securitisation process does not involve the substantial transfer of all risks and rewards, as it does not meet the derecognition requirements set by IAS 39. In addition, the vehicles were consolidated in order to provide a comprehensive view of the transaction.

The maximum theoretical loss for Banca IFIS is represented by the losses that could potentially arise within the portfolio of assigned receivables, and the impact would be the same as if the securitisation programme did not exist; therefore, the securitisation has been accounted for as follows:

  • the securitised receivables purchased outright were recognised under “loans to customers”, subline item “factoring”;
  • the funds raised from the issue of senior notes subscribed for by third parties were recognised under “outstanding securities”;
  • the interest on the receivables was recognised under “interest on loans to customers”;
  • the interest on the notes was recognised under “interest due and similar expenses”, subline item “outstanding securities”;
  • the arrangement fees were fully recognised in profit or loss in the current year.

   

At 31 December 2016, the interest on senior notes recognised in profit or loss amounted to 2,2 million Euro (at a 1,15% rate). The up-front costs incurred for these transactions amounted to 0,3 million Euro in commission expense and 0,5 million Euro in operating costs.

 

Indigo Lease securitisation

In December 2016, IFIS Leasing S.p.A. (originator) finalised a securitisation that involved selling a portfolio of performing loans totalling 489 million Euro to the special purpose vehicle Indigo Lease S.r.l.

The transaction was arranged in order to raise part of the funding for the acquisition of the former GE Capital Interbanca Group.

The securitisation was rated by Moody's and DBRS, which will also perform the annual monitoring throughout the term of the transaction.

 

The initial purchase price of the assigned receivables portfolio, equal to 489 million Euro, was paid by the vehicle to IFIS Leasing S.p.A. using funds raised from the issue of senior notes for an amount of 366 million Euro. These received an AA3 (sf) rating from Moody's and an AA (sf) rating from DBRS, and their redemption is connected to the collections realised on the receivables portfolio. In addition, the vehicle issued 138 million Euro in junior notes that were acquired by IFIS Leasing S.p.A. and did not receive a rating.

 

IFIS Leasing S.p.A. acts as servicer, performing the following tasks:

  • following collection operations and monitoring cash flows on a daily basis;
  • reconciling the closing balance every month;
  • preparing the monthly report with the information about the financial position and performance of the securitised portfolio for the vehicle;
  • verifying, completing and submitting the service report with the information on the securitised portfolio requested by the vehicle and the banks on a monthly and quarterly basis.

 

In compliance with IASs/IFRSs, currently the securitisation process does not involve the substantial transfer of all risks and rewards, as it does not meet the derecognition requirements set by IAS 39. In addition, the vehicles were consolidated in order to provide a comprehensive view of the transaction.

The maximum theoretical loss for IFIS Leasing S.p.A. is represented by the losses that could potentially arise within the portfolio of assigned receivables, and the impact would be the same as if the securitisation programme did not exist; therefore, the securitisation has been accounted for as follows:

  • the securitised lease agreements were recognised under “loans to customers”, subline item “finance leases”
  • the funds raised from the issue of senior notes subscribed for by third parties were recognised under “outstanding securities”;
  • the interest on lease agreements was recognised under “interest on loans to customers”
  • the interest on the notes was recognised under “interest due and similar expenses”, subline item “outstanding securities”;
  • the arrangement fees were fully recognised in profit or loss in the current year.

At 31 December 2016, the interest on the senior notes recognised in profit or loss amounted to 0,1 million Euro (at a 2,43% rate). The up-front costs incurred for these transactions amounted to 8,4 million

Euro, including 5,8 million Euro in commission expense and 2,6 million Euro in operating costs. These costs were incurred in part by the vehicle and in part by the Parent Company Banca IFIS.

 

Indigo Loan securitisation

In December 2016, Interbanca (originator) finalised a securitisation that involved selling a portfolio of performing loans totalling 406 million Euro to the special purpose vehicle Indigo Lease S.r.l.

The transaction was arranged in order to raise part of the funding for the acquisition of the former GE Capital Interbanca Group. 

The initial purchase price of the assigned receivables portfolio, equal to 406 million Euro, was paid by the vehicle to Interbanca using funds raised from the issue of senior notes for an amount of 188 million Euro. Their redemption is connected to the collections realised on the receivables portfolio. In addition, the vehicle issued 227 million Euro in junior notes that were acquired by Interbanca.

Interbanca acts as servicer, performing the following tasks:

  • following collection operations and monitoring cash flows on a daily basis;
  • reconciling the closing balance every month;
  • preparing the monthly report with the information about the financial position and performance of the securitised portfolio for the vehicle;
  • verifying, completing and submitting the service report with the information on the securitised portfolio requested by the vehicle and the banks on a monthly and quarterly basis.

In compliance with IASs/IFRSs, currently the securitisation process does not involve the substantial transfer of all risks and rewards, as it does not meet the derecognition requirements set by IAS 39. In addition, the vehicles were consolidated in order to provide a comprehensive view of the transaction.

The maximum theoretical loss for Interbanca is represented by the losses that could potentially arise within the portfolio of assigned receivables, and the impact would be the same as if the securitisation programme did not exist; therefore, the securitisation has been accounted for as follows:

  • the securitised mortgages were recognised under “loans to customers”, subline item “mortgages”;
  • the funds raised from the issue of senior notes subscribed for by third parties were recognised under “outstanding securities”;
  • the interest on the mortgages was recognised under “interest on loans to customers”;
  • the interest on the notes was recognised under “interest due and similar expenses”, subline item “outstanding securities”;
  • the arrangement fees were fully recognised in profit or loss in the current year.

At 31 December 2016, the interest on the senior notes recognised in profit or loss amounted to 0,1 million Euro (at a 2,43% rate). The up-front costs incurred for these transactions amounted to 8,4 million Euro, including 5,8 million Euro in commission expense and 2,6 million Euro in operating costs. These costs were incurred in part by the vehicle and in part by the Parent Company Banca IFIS.

     

Quantitative information

C.1 Banking group - Exposures from the main “own” securitisations broken down by type of securitised asset and type of exposure

Type of securitised asset/Exposure On-balance-sheet exposures Guarantees granted Credit lines
  Senior Mezzanine Junior Senior Mezzanine Junior Senior Mezzanine Junior
  Carrying amount Impairment losses/reversal Carrying amount Impairment losses/reversal Carrying amount Impairment losses/reversal Net exposure Impairment losses/reversal Net exposure Impairment losses/reversal Net exposure Impairment losses/reversal Net exposure Impairment losses/reversal Net exposure Impairment losses/reversal Net exposure Impairment losses/reversal
A, Fully derecognised  -  -  -  -  -  -  -  -  -  -  -  -  -  -  -  -  -  -
- asset type  -  -  -  -  -  -  -  -  -  -  -  -  -  -  -  -  -  -
B, Partly derecognised  -  -  -  -  -  -  -  -  -  -  -  -  -  -  -  -  -  -
- asset type  -  -  -  -  -  -  -  -  -  -  -  -  -  -  -  -  -  -
C, Not derecognised  -  -  -  - 396,361  -  -  -  -  -  -  -  -  -  -  -  -  -
- non-performing loansto customers  -  -  -  - 334  -  -  -  -  -  -  -  -  -  -  -  -  -
- performing loansto customers  -  -  -  - 396,027  -  -  -  -  -  -  -  -  -  -  -  -  -
 

C.3 Banking group - Interests in special purpose vehicles for the securitisation

Securitisation name/ special purpose vehicle Registered office Consolidation AssetsLiabilities
   Loans and receivablesDebt securitiesOthers SeniorMezzanineJunior
IFIS ABCP Programme S.r.l.Conegliano (Province of Treviso)100%1,380,929-75,167946,261--
Indigo Loan S.r.l.Conegliano (Province of Treviso)100%395,177-58,517188,100-227,200
Indigo Lease S.r.l.Conegliano (Province of Treviso)100%451,400-46,844366,300-138,000
       

C.6 Interests in special purpose vehicles

Securitisation name/ special purpose vehicle  Registered office  % stake
     
IFIS ABCP Programme S.r.l. Conegliano (Province of Treviso) 0%
Indigo Loan S.r.l. Conegliano (Province of Treviso) 0%
Indigo Lease S.r.l. Conegliano (Province of Treviso) 0%
 

D. Disclosure on structured entities (other than securitisation vehicles)

D.2 Unconsolidated structured entities

Qualitative information

During 2014, Banca IFIS bought a property in Florence to be renovated for 9,6 million Euro. It plans to move the NPL area's offices there. At the same time, the Bank sold a finance lease agreement concerning the property currently housing the NPL Area to a newco, a special purpose vehicle set up exclusively to manage said property and owned by a real estate company not related to the Banca IFIS Group.

Following the sale of the lease agreement, Banca IFIS is jointly liable for the settlement of the relevant lease payments. To hedge the risk of insolvency on the part of the newco, Banca IFIS obtained that it set up a 1 million Euro security deposit with the Bank as well as a lien on 99% of voting shares in the newco, to be exercised in the event the newco defaults on its obligations.

Pending completion of the renovation works, the Bank had entered into a lease agreement with the newco to continue using the offices for a rent essentially aligned with lease payments.

Following the completion of the renovation works, the lease agreement was terminated in October 2016.

In 2016, the newco regularly settled the lease payments due using the money raised from the leased property. 

Since the sale of the lease agreement does not meet the requirements of IAS 39 for derecognising the financial liability, Banca IFIS continues to recognise the building under property, plant and equipment, and the relevant financial liability under payables due to customers.

Quantitative information

Items/ Type of structured entity Accounting portfolios under assets Total assets (A) Accounting portfolios under liabilities Totalliabilities (B) Net book value (C=A-B) Maximum exposure to the risk of loss (D) Difference between exposure to the risk of loss and book value (E=D-C)
1. Special purpose vehicle n.a. - Due to customers 553 (553) - (553)

The maximum risk of loss is zero, as can be seen from the qualitative information provided.

     

E. Sales

A. Financial assets sold and not fully derecognised

Qualitative information

Financial assets sold but not derecognised refer to securitised receivables and Italian government bonds used for repurchase agreements. Those financial assets are recognised under available for sale financial assets, whereas financing for repurchase agreements is recognised under payables due to customers.

Quantitative information

E.1 Financial assets sold and not derecognised: book value and full value

Types/ Portfolio Financial assets held for trading Financial assets at fair value Available for sale financial assets Held to maturity financial assets Due from banks Loans to customers Total
  A B C A B C A B C A B C A B C A B C 31/12/2016 31/12/2015
A, On-balance-sheet assets - - - - - - 323,033 - - - - - - - - 927,626 - - 1,250,659 -
1, Debt securities - - - - - - 323,033 - - - - - - - - - - - 323,033 -
2, Equity securities - - - - - - - - - X X X X X X X X X - -
3, UCITS - - - - - - - - - X X X X X X X X X - -
4, Loans - - - - - - - - - - - - - - - 927,626 - - 927,626 -
B, Derivatives - - - X X X X X X X X X X X X X X X - -
Total 31.12.2016 - - - - - - 323,033 - - - - - - - - 927,626 - - 1,250,659 X
of which non-performing - - - - - - - - - - - - - - - 1,373 - - 1,373 X
Total 31.12.2015 - - - - - - 2,667,606 - - - - - - - - - - - X 2,667,606
of which non-performing - - - - - - - - - - - - - - - - - - X -

Key:

A= Financial assets sold and fully recognised (book value)

B= Financial assets sold and partly recognised (book value)

C= Financial assets sold and partly recognised (full value)