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Data from 2022/2023 on the non-performing loans (NPL) market show a significant decrease in their volume. However, Fabio Panetta, the Governor of the Bank of Italy, recently warned that while an increase in interest rates may initially benefit bank balances, in the long term it could have negative effects on households and businesses, thus influencing the quality of credit.

It is important to note that, despite the reduction in NPLs, their total volume still stands at around 300 billion euros, mainly held by operators who have acquired them over the years. These operators are at the center of a secondary market that is currently facing difficulties in starting up due to issues such as informational asymmetry, lack of interaction between supply and demand, and inefficiency and lack of transparency in the sale process.

The situation regarding credit securitization, the main tool for selling NPLs, is particularly critical. Although common, this practice presents various problems related to its structural complexity, evaluation of underlying assets, high costs, and the need to obtain high yields from issued bonds.

The European Union has shown a strong interest in overcoming these challenges through the Capital Market Union and Directive NPL 2167/2021, aiming to revitalize securitization and create a secondary market for NPLs.

One solution that could effectively address the challenges of the secondary market and securitization is the use of blockchain technology. Blockchain, a subset of Distributed Ledger Technology (DLT), uses a structure of cryptographically linked blocks to securely and immutably record transactions.

Each node in the blockchain network retains a complete copy of the transaction ledger, ensuring total transparency and immutability of data. This feature could revolutionize NPL management by allowing the tokenization of ABS notes and their trading on a blockchain. This would allow investors to participate fractionally in assets, expanding investment access and promoting financial inclusion.

The positive effects of blockchain and tokenization include increased market liquidity, greater efficiency in operational processes, and reduced transaction costs. All of this is made possible by the Fintech Decree of 25/2023, which introduced provisions for digital financial instruments and paved the way for their regulation in accordance with European regulations.

In conclusion, the use of blockchain in the financial sector could revolutionize NPL management and improve the overall efficiency of the financial market, thereby contributing to economic growth and financial stability.

Sorec, with over 30 years of experience, has been able to see beyond the current state of the market, becoming a protagonist in a secondary market despite its struggles to take off, and strongly believes in the innovation of a financial niche that demands innovation and hopes that the opportunity provided by European and national legislators will be seized.

Claudia Lo Curto – Legal&Compliance Manager Sorec S.r.l. 

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