Community banks have long been a source of funding for mortgages that didn’t fit the underwriting criteria to qualify for purchase by the government-sponsored enterprises (GSEs). These loans typically are held on balance sheet rather than securitized.
Despite a visible reduction in system-wide NPL ratio in Italy, progress in reducing stocks of high NPLs to manageable levels remains insufficient. Amid continued difficulties in boosting revenues, remaining cost-inefficiencies also weigh on banks’ profitability.