Non Performing Loans - the markets of Italy and Sweden

Abstract: A1207 Many countries are suffering from Non Performing Loans (NPLs), which are defaulted loans that banks are unable to profit from. There are two general ways to secure NPLs. One is for banks to handle them themselves, which is common in Sweden where the NPL market is not so widespread. The alternative is for banks to auction them in public to Asset Management Companies (AMCs), which purpose is to dispose of the assets as profitably as possible. This procedure is used at the vast Italian NPL market. Our purpose is to describe how these countries secure their NPLs from three aspects; the market, legal and financial aspect. We investigate how Svenska Handelsbanken (Handelsbanken) in Sweden and Morgan Stanley Real Estate Fund (MSREF) in Italy handle their NPLs. The study has been made through interviews at respective companies. Our study reveals that historic actions of the government, credit culture and management decisions have shown to be crucial causes to the spread of NPLs. The Swedish legal system allows banks to secure their own defaulted loans in a fast and efficient way, while the Italian is more unwieldy and does not give banks any incentive to work out their NPLs. From a financial perspective, neither one nor the other method can be stated better since the companies operate in different fields. The main reasons that affect the financial result are the specific national conditions. Credit culture and legal system are two vital factors that benefit Handelsbanken while they obstruct MSREF. However, both Italian and Swedish AMCs respective banks must continue to review their routines and adaptation ability in order to excel in the future.