Non-performing loan (NPL) workout costs in Italy vary by asset class and workout strategy. Estimating legal expenses and other external costs is important when estimating bank risk parameters like loss given default, for the valuation of non-performing loans or when assessing alternative workout strategies. Original business plans for Italian NPL portfolios have underestimated legal costs. Drawing on GACS securitisation data covering EUR 20 billion and over 300,000 loans, this article benchmarks legal and court procedural expenses across four asset classes and three workout strategies, providing an empirically grounded reference for more accurate cost modelling.

Our findings show significant cost variation across workout pathways and revisions to costs and legal expenses in updated business plans. Out-of-court settlements carry the lowest expense ratios, in-court enforcement adds 6–15% in combined legal and court fees, foreclosure costs were systematically underestimated, and REO strategies often absorb high costs of 20–40% of resale value. While formal bankruptcies are generally expected to be the most expensive route in terms of percentage of recovery lost to costs, the GACS data does not point to consistently higher bankruptcy costs compared to foreclosure.

Read the full article here: Legal Expenses in Italian NPL Workout