The Italian Unlikely to Pay Market Ready to tackle the challenge?

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1 The Italian Unlikely to Pay Market Ready to tackle the challenge?

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3 Contacts Pier Paolo Masenza Financial Services Deals Leader M: Fedele Pascuzzi Business Recovery Services Leader M: Vito Ruscigno Co-Head of NPL M: Alessandro Biondi Co-Head of NPL M:

4 Contents The Italian Non Performing Exposure market and our view 05 The Unlikely to Pay segment 07 1 Unlikely to Pay distribution among Top 20 banks 08 2 UTP ratio on NPE Top 20 Italian banks 09 3 Unlikely to Pay inflows and outflows from 2014 to 2016 Top 20 Italian banks 10 4 Unlikely to Pay coverage ratio Top 10 and Top 20 Italian banks 11 5 UTP performance from 2014 to 2016 collections and returns to 13 6 What should banks do to tackle the UTP challenge? 15 7 Which strategic options to fix the UTP issue? 16 8 Forbearance as a relevant measure for the proactive management of UTP 17 9 How will the IFRS9 affect UTP? 10 Non Performing Exposures classifications 11 Unlikely to Pay inflows and outflows from 2014 to 2016 Top 10 Italian banks (breakdown by bank) Outflows Top 20 Italian banks 27 Disclaimer: PwC analysis are based on FY14, FY15, FY16 banks financial statements (tab. A.1.7 and A.1.8) and Data Provider dataset 4 The Italian Unlikely to Pay market Ready to tackle the challenge?

5 The Italian Non Performing Exposure market and our view PwC 5

6 Asset Quality The NPE ( Non Performing Exposures ) volume in the Italian banking sector is the highest in the European market reaching the value of 324bn (GBV) at the end of After reaching the peak at the end of 2015, totaling 341bn, the NPE volume experienced a slight but firm decline during 2016 (-5%). The declining trend of UTP, within the NPE, is mainly driven by lower inflows from and past due loans. At the end of 2016 the UTP reached 117bn vs previous year s 127bn (GBV). UTP provisioning resulted in 86bn of NBV at the end of 2016 (avg. coverage at 27%), higher than the bad loans NBV equal to 85bn (avg. coverage at 57%) Past Due ( bn) Unlikely to Pay ( bn) Bad Loans ( bn) NBV 86bn NBV 85bn Our view The volume of UTP, lower than bad loans in terms of GBV ( 117bn vs 200bn) but higher in terms of NBV ( 86bn vs 85bn), will require the adoption and implementation of a renovated strategic management and deleveraging approach by the Italian banks. ECB guidelines provide a great opportunity to renovate and improve the proactive management of NPE to address the issue of their massive stock. Moreover IFRS9, in place from 1 January 2018, will lead to an «early warning» and «forward looking» approach, which could likely result in higher reclassification of loans to NPE/UTP and overall higher provisions. Only by focusing the efforts in the proactive management of their UTP exposures, the Italian banks could aim at deleveraging their UTP, through higher collection, higher cure rates to loans, lower danger rates to bad loans. The proactive management of UTP should cover three main issues: (i) data quality and preliminary strategic portfolio segmentation, (ii) accurate analysis of the borrowers and integrated single names management and (iii) implementation of the most appropriate strategic option to identify among forbearance measures, cash injection (equity/ debt) even through third investors, loan sales and liquidation procedures. In other words, the proactive management of UTP is without a doubt a complex issue entailing and requiring due diligence, data quality, restructuring, turnaround management and M&A/special situation expertise. Thus, are the Italian banks ready to tackle the challenge? 6 The Italian Unlikely to Pay market Ready to tackle the challenge?

7 The Unlikely to Pay segment An opportunity to not miss out PwC 7

8 1 Unlikely to Pay distribution among Top 20 banks At the end 2016, the UTP exposure amounted to 117bn showing a declining trend vs YE2015 (-8%). 93% of the overall amount is concentrated within the Top 20 Banks UTP among Top 20 Italian banks At the end of 2016 the overall UTP exposure is highly concentrated within the Top 10 Italian banks (83% of the total UTP exposure vs 81% in 2015); when considering the Top 20 Italian banks, such percentage reaches 93% in line with However, there have been few exceptions like Carige, Banca BPM, Banca Popolare di Vicenza and Veneto Banca that recorded a different trend (Carige +15%, BPM +4%, Vicenza +4% and Veneto +25% in Dec 2016 vs Dec 2015). The UTP exposure declining trend, started in 2015 (-3% from YE2014 to YE2015), is confirmed in 2016 (-8% YoY). Bn 38% 17% % vs. PY 21% % vs. PY 2% 8% % % vs. PY BPM Banco Popolare 10% % vs. PY 4% vs. PY -13% vs. PY 4% % vs. PY 4% % vs. PY 4% 4.6 4% vs. PY 4% % vs. PY 3% 4.0-1% vs. PY 3% % vs. PY 17% Credito Valtellinese CA Cariparma BP di Sondrio Iccrea(**) BP di Bari Banca IFIS Banco di Desio CR Bolzano CR di Ravenna Banca Findomestic (**) 0.4 Others % UniCredit GRUPPO GRUPPO Intesa GRUPPO MPS MONTE GRUPPO Banco BANCO GRUPPO UNIONE GRUPPO GRUPPO GRUPPO GRUPPO BANCA (*) UBI BNL BPVI Veneto BPER UNICREDIT BANCARIO INTESA DEI PASCHI DI POPOLARE DI BANCHE BANCARIO BANCA BANCARIO BANCA BANCARIO VENETO POPOLARE SANPAOLO Sanpaolo SIENA BPM ITALIANE NAZIONALE DEL POPOLARE DI Banca BANCA DELL'EMILIA LAVORO VICENZA ROMAGNA (**) Carige Others GBV total 31Dec2016 GRUPPO CARIGE Other Total 2016 (*) Volumes of Banco BPM were calculated as sum of the figures of Banco Popolare and BPM (merged together in Banco BMP from 1 January 2017) Banco Popolare BPM (**) BNL and Banca Findomestic UTP 44% 44% Gross UTP/Gross exposure NPE as at 31Dec15; ICCREA UTP exposure as at 31Jun16 24% 17% Gross NPE ratio 8 The Italian Unlikely to Pay market Ready to tackle the challenge?

9 2 UTP ratio on NPE Top 20 Italian banks UTP stock is an issue to be tackled promptly: 37% of the NPE of the Top 20 Italian banks are UTP as at 31Dec16, with several banks (#12) featuring UTP ratio on NPE over 40% 1% FY16 NPE breakdown from 2014 to 2016 by bank 44% 55% Banco Popolare 44% 56% BPM Gross UTP var.% from 2014 to 2016 Past Due UTP Bad Loans -19% -15% -20% -15% -13% 4% 3% 2% 2% 4% 6% 2% 1% 2% 1% 2% 1% 4% 2% 1% 35% 32% 32% 37% 36% 34% 42% 37% 33% 49% 4% 2% 47% 44% 1% 45% 46% 41% 62% 64% 66% 61% 62% 65% 45% 46% 41% 54% 57% 64% 49% 51% 55% 50% 52% 58% % 52% 58% Unicredit Intesa Sanpaolo MPS Banco BPM* UBI +3% 5% 2% 37% 36% 58% 62% Not available 6% 42% 53% % +91% -8% +8% 2% 2% 2% 1% 2% 1% 3% 4% 2% 7% 39% 35% 36% 48% 48% 47% 9% 50% 44% 50% 47% 41% 49% 52% 50% 59% 62% 63% 51% 46% 48% 51% 51% BNL BPVI Veneto Banca BPER Carige 11% 40% +18% -4% +22% 6% 4% 11% 8% 4% 2% 2% 12% 44% 44% 43% 45% 40% 43% 45% 45% 3% 49% +26% 3% 52% 2% 49% 8% 33% +25% 9% 32% 8% 40% 49% 50% 52% 53% 53% 58% 43% 45% 47% 48% 44% 48% 59% 59% 52% Credito Valtellinese CA Cariparma BP Sondrio H 2016 ICCREA BP di Bari +381% 8% 33% 4% 40% +11% 4% 38% 1% 37% 2% 47% -20% 2% 42% 1% 52% 4% 63% -11% +42% 4% 2% 3% 6% 60% 55% 22% 29% 3% 27% 8% 6% 35% 28% 66% 57% 59% 56% 58% 62% 52% 56% 47% 34% 36% 43% 73% 68% 69% Banca IFIS Banco di Desio e Brianza CR di Bolzano CR di Ravenna Banca Findomestic (*) Ratios of Banco BPM were calculated as sum of the figures of Banco Popolare and BPM (merged together in Banco BMP from 1 January 2017) PwC 9

10 Remain UTP Remain UTP 3 Unlikely to Pay inflows and outflows from 2014 to 2016 Top 20 Italian banks At the end of 2016, despite the decreased outflows to bad loans (-2%) and inflows from (-4%) compared to 2015, 57% of UTP remained as such. The UTP challenge lies in the management of their massive stock Outflows and Inflows In 2016, total outflows of the Top 20 Italian banks slightly decreased from 51.1bn to 50.1bn primarily driven by lower outflows to bad loans: 23% in 2015 vs 21% in (*) The inflows in 2016 decreased as well (from 52.1bn to 42.5bn) mainly due to the lower inflows from exposures. (*) As for the outflows, the UTP gauged a firm decline of inflows from loans over the last 2-year period: 23% in 2015 vs 19% in UTP which remained UTP during 2016 amounted to 66.8bn i.e. 57%, proving how the main issue for the Italian UTP lies mainly in their massive stock and a management not yet able to target deleveraging solutions. In particular, according to Bank of Italy, 62.5% of the restructuring agreements (which qualify most of the UTP exposures) after 3 years are still in place (49% after 4 years) and did not result in a positive and conclusive outcome (i.e. after 4 years 40.9% of the restructuring agreements resulted in liquidation/bankruptcy procedures). Bn Outflows (51.1) Inflows 52.1 Outflows (50.1) Inflows (5%) 10% (5%) (13%) 13% (12%) 9% 9% (23%) (4%) 23% (21%) (4%) 19% 56% 57% (1) Exposure 31Dec14 To Collected To bad loans Others From From non Other inflows Exposure 31Dec15 To Collected To bad loans Others From From non Other inflows Exposure 31Dec16 (*) Inflows and outflows in 2016 for BNL, ICCREA and Banca Findomestic were estimated equal to the flows occurred in 2015 (to date their financial statements as at 31Dec16 are not yet available) % flows = In/Outflow Initial exposure 10 The Italian Unlikely to Pay market Ready to tackle the challenge?

11 UTP Coverage ratio 31Dec16 4 Unlikely to Pay coverage ratio Top 10 and Top 20 Italian banks The Top 10 Italian banks increased their provisions of UTP in Their average coverage ratio reached 30.8% while their ratio on total loans was 10.3% UTP Coverage ratios vs. Gross UTP ratios Top 10 Italian Banks featured general higher provisions of UTP in 2016 vs 2015, resulting in higher coverage ratios (average ratio equal to 30.8% in 2016). In particular UniCredit and Intesa Sanpaolo, both below the average Gross UTP ratio (4.9% and 5.1% respectively), increased their UTP provisions reaching UTP coverage equal to 43.1% (UniCredit) and 26.7% (Intesa Sanpaolo) at the end of MPS, third group in terms of UTP exposures, showed gross UTP ratio (11.5%) lower than in 2015 (12.9%) with an average UTP coverage of 40.3% in 2016 compared to 29.2% in Top 10 Italian banks Ratios of Banco BPM (calculated as sum of the figures of the single entities, Banco Popolare and Banca BPM, merged together in Banco BPM from 1 January 2017) showed a reduction of the gross UTP ratio (9.5% in 2016 vs 10.4% in 2015) as well as the growth of the UTP coverage (27.4% in 2016 vs 24.8% in 2015). Veneto Banca, Carige, Banca Popolare di Vicenza featured higher gross UTP ratio and UTP coverage in 2016 vs Bubble size: Unlikely to Pay gross exposure % Bubble size: Unlikely to Pay gross exposure 2015 YoY shift (FY15-FY16) 45% 40% UniCredit 35% BNL (**) MPS 30% Avg. 16 Top 10 (30.8%) BPM (*) Banco BPM (*) Banco Popolare 25% Intesa Sanpaolo BPER BPVI 20% CARIGE Veneto Banca 15% UBI Avg. 16 Top 10 (10.3%) 10% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Gross UTP ratio 31Dec16 (*) Ratios of Banco BPM were calculated as sum of the figures of Banco Popolare and BPM (merged together in Banco BMP from 1 January 2017) (**) BNL UTP exposure as at 31Dec15 PwC 11

12 UTP Coverage ratio 31Dec16 UTP average coverage ratio for Top 20 Italian banks reached 30.5% in 2016 while gross UTP ratio on total loans was equal to 9.1% UTP Coverage ratios vs. Gross UTP ratios The Top 11 to 15 Italian Banks (Credito Valtellinese, Crédit Agricole Cariparma, Banca Popolare di Sondrio, ICCREA and Banca Popolare di Bari) showed gross UTP exposures over 1bn. The residual Top 16 to 20 Italian banks showed gross UTP exposures lower than 1bn. Among the Top 20 Italian banks, 12 out of 20 showed coverage ratios below the average (30.5%) while 9 out of 20 showed gross UTP ratios on total loans higher than the average (9.1%). For the Top 11 to 20 Italian banks the gross UTP ratio on total loans is in a range from 5.0% to 12.1% while their coverage ratio is in a range between 20.8% and 33.0%. Top 20 Italian banks 60% Banca Findomestic (**) Bubble size: Unlikely to Pay gross exposure % Banco BPM (*) UniCredit MPS 40% BP di Sondrio 30% Avg. Top 20 (30.5%) BNL (**) ICCREA (**) CARIGE BPVI Veneto Banca 20% Intesa Sanpaolo CA Cariparma UBI CR di Ravenna Banco di Desio e della Brianza BPM BPER CR di Bolzano Credito Valtellinese Banco Popolare Banca Popolare di Bari Banca IFIS Avg. Top 20 (9.1%) 10% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Gross UTP ratio 31Dec16 (*) Figures of Banco BPM were calculated as sum of the figures of Banco Popolare and BPM (merged together in Banco BMP from 1 January 2017) 12 The Italian Unlikely to Pay market Ready to tackle the challenge? (**) BNL, Banca Findomestic UTP exposure as at 31Dec15, ICCREA as at 30Jun16

13 5 UTP performance from 2014 to 2016 collections and returns to UTP collections and returns to increased from 2014 to 2016, even if the figures are still low. Solely through a proactive management of UTP, cure rates and collections could further arise Performance Top 20 and total Italian Market For the Top 20 Italian banks, the portions of UTP returned to remained stable from 2014 (3.8%) to 2016 (3.8%). A similar trend for the cure rate was confirmed even for the Italian banking market (3.6% in 2014 v.s. 3.7% in 2015). For the Top 20 Italian banks, the collections of UTP increased regurarly over the period 2014/2016 from 6.8% to 9.5%. A similar trend is confirmed for the overall Italian banking sector. % recovery = Exit to / collection Initial exposure + Inflows 12.5% 13.3% 10.6% 12.4% 10.4% 8.7% 8.7% 9.5% 6.8% 6.8% 3.8% 3.6% 3.7% 3.7% 3.8% (*) Top 20 Market Top 20 Market Top 20 % To Performing Top 20 % Collected Top 20 % To Performing market % Collected market Total Top 20 % Total market % (*) Figures for 2016 do not include returns to and collections for BNL, ICCREA and Banca Findomestic PwC 13

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15 6 What should banks do to tackle the UTP challenge? UTP need to be moved out of their hybrid condition. Banks should carry on portfolio segmentation to better understand their UTP asset quality as well as implement a due diligence approach on a single name basis to identify the most effective and efficient deleveraging strategy for their UTP. Different options might be available and vary case by case Our view about what banks should do for a proactive management of UTP 1 Carry on portfolio segmentations for (i) a better understanding of the asset quality of their UTP, (ii) a proper classification of the portfolio and (iii) a preliminary identification of management strategies 2 Perform analysis on borrowers financial statements/updated quarterly reports/ Business Plan, Budget and any further financial documentation about the borrowers performance and financial position 3 Regularly monitor the Central Credit Register to be informed on the total exposure to the system and relevant movements (overdraft withdrew or decrease, bad loan classification) 4 5 Use early warning indicators: from internal (companies and individuals) and external sources Produce and regularly update an overall rating on borrowers overall risk based upon info gathered from several sources Market risks (external variables such as those regarding the environment where the borrowers operate) Operational risks (risks concerning the operational structure of the borrowers) Financial risks (financial soundness of the borrowers and / or relevant customers and / or suppliers) 6 Implement improved NPE operating model: dedicated workout units, procedures for classification and segmentation, tailor made management strategies on a single name basis PwC 15

16 7 Which strategic options to fix the UTP issue? Following the improved proactive management, banks could identify the most effective and efficient solutions to deleverage their UTP (e.g. return to, collection) among several strategic options. Solely a proactive management of UTP could lead to the right tailor made strategic solution Our view on the available strategies for UTP The strategic options identified through the on going due diligence carried out by the bank on the borrower s case could result in the return of the loan in the category or in the sale of the loan or in the classification of the exposure as bad loans (thus requiring the prompt liquidation of the borrower s asset through judicial procedures) Sale of UTP could be even executed through portfolios transactions which require preliminary strategic segmentation to maximize loans value for the banks. Potential return to Forbearance measures Grace period / Payment moratorium Extension of maturity / term Debt consolidation New credit facilities Recovery plan ex art 67 Italian Bankruptcy Law Debt restructuring ex art 182bis Italian Bankruptcy Law Investor s equity injection /underwriting of senior debt Industrial partner to revamp and establish the underlying borrower s business (long term approach) Financial partner to inject cash within a strategic exit plan (short/medium term approach) UTP proactive management Loan sale True sale (full derecognition purposes) Securitisation (to attract wider investors base) Partial loan transfer (to share risks and opportunities with new investors) Liquidation procedures Voluntary liquidation of collateral by the debtor (also foreseen within the forbearance measures) Judicial procedures to sell the borrower s (guaranteed) asset after preliminary assessment of liquidation value and timing of the procedure Classification to bad loan 16 The Italian Unlikely to Pay market Ready to tackle the challenge?

17 8 Forbearance as a relevant measure for the proactive management of UTP Italian banks should improve their loans restructuring procedures throughout an appropriate and more effective case by case analysis of the financial difficulty of the borrower The ECB guidance on Forbearance The ECB guidance emphasizes that the main objective of forbearance measures is to allow debtors to exit their non- status or to prevent borrowers from reaching a non- status. Therefore, the guidance actively addresses the theme, by guiding banks in the identification of the optimal balance of forbearance measures aimed at granting the exit from short- and long-term difficulty status of the debtor. In particular, on the basis of the type of difficulty of the debtor, either short- or long-term forbearance measures (or a combination of the two) maximizing recoveries shall be identified, by granting, simultaneously, the sustainability of the adopted measures (e.g. debt service capacity). Main forbearance measures (1) Application examples Intervention area Adoption of short-term measures Adoption of long-term measures Interest Temporary financial difficulty of minor entity to be overcome within 24 months Temporary payment of interest only (no capital reimbursement) Excessively high interest rates for the debtor Permanent reduction of interest rates Instalments Temporary financial difficulty of moderate entity to be overcome within 24 months Temporary reduction of instalment amount Full interest payment Misalignment between repayment plan and reimbursement capacity of the debtor Rescheduling of amortization plan (e.g. partial, bullet, stepup) Maturity Temporary financial difficulty of moderate/ serious entity to be overcome within 24 mo. Grace period for the payment of interests and capital Excessively high instalments for the debtor Extension of debt maturity Collateral Permanent difficulty and good level of collateralization Voluntary disposal of collateral by the debtor = financial situation of the debtor = applicable forbearance measure (1) In addition to debt forgiveness and/or arrears capitalisation options In particular cases it is possible to adopt new credit facilities or debt consolidation measures PwC 17

18 9 How will the IFRS9 affect UTP? Starting from 2018, we expect that a higher portion of loans might be at risk to be reclassified in loans higher risk categories following the introduction of a different valuation approach (from ex post to forward looking ) Our view on the requirements arisen from the adoption of IFRS9 for the Italian banks The transition to IFRS 9 (from IAS 39) will be critical as banks will be required to accrue provisions based on expected losses and not only upon the occurrence of specific events (e.g. impairment tests ). Banks will be asked to adopt a forward looking approach and as such to anticipate losses at the first signals of deterioration. As a result, specific instruments as well as right structure and skilled people to proactively monitor borrowers performances will be required. Classification Impairment New classification criteria will lead to 3 new classes of loans ( Hold to collect, Hold to collect and sale, Trading ). The need to properly classify their exposures will require the bank to review and strategically refine their business model associated to the loans management: On the one hand, for the portfolio to hold, banks should strenghten the internal credit monitoring functions in terms of expertise as well as of renovated tools of credit risk measurement (e.g. KPI, index, advanced CRM solutions) On the other hand, for the portfolio to sell, banks should implement specialised units in charge of the structuring and execution of loans sale transactions (e.g. data preparation and remediation, securitisation) New impairment criteria, based on the expected loss and forward looking approach, will result in certain portions of the current portfolio classified in loans higher risk categories (e.g. from to UTP/bad loans) Higher impairment (by collective and analytical provisioning) will result through the forward looking approach which will move up losses to be incurred over the loans lifetime Need to foresee the lifetime losses will require the banks to implement proactive actions to preliminarly assess borrowers likelyhood to pays their debts along with avoid further danger rate from to UTP and bad loans 18 The Italian Unlikely to Pay market Ready to tackle the challenge?

19 10 Non Performing Exposures classifications How to define and what to include within the Unlikely to Pay category Non-Performing Exposures The commonly used term non- loans ( NPL ) is based on different definitions across Europe. To overcome problems, EBA has issued a common definition of Non-Performing Exposures ( NPE ) which is used for supervisory reporting purposes. In Italy, banks are also required to distinguish among different classes of NPE: (i) Bad Loans, (ii) Unlikely to Pay and (iii) Past Due; the sum of these 3 categories corresponds to the Non-Performing Exposures referred to in the EBA ITS. The unlikelihood judgement of UTP The exposures are classified as Unlikely to Pay in light of the unlikelihood that relevant debtors will fulfil their credit obligations. The unlikelihood judgement is made by the Bank based on a varied spectrum of signals and issues. The range of signals and issues may be very wide and differs case by case but a common feature is that each of them is recoverable and / or is manageable if tackled properly and timely. Time is of essence. Old New Definition of risk category Past Due Esposizioni scadute > 90 giorni Past Due more than 90 days loans (debt) Esposizioni scadute Including FNPE (*) NPE Exposure to any borrower whose loans are not included in other categories and who, at the date of the balance sheet closure, have Past Due amounts or unauthorized overdrawn positions of more than 90 days. A sub-segment is now represented by the Forborne Non- Performing Exposures ( FNPE ), credits granted to a counterparty in financial difficulty and which are not classified as Bad Loans and have been subject to the modification of the terms and conditions of the contract or refinancing. Restructured Crediti ristrutturati Sub standard Incagli Unlikely to Pay Inadempienze probabili Including FNPE (*) The classification of loans in this category is the result of the judgment of the bank about the debtors unlikelihood to fulfil its credit obligations. This category substitutes the old sub- standard loans ( Incagli ) and restructured loans ( Crediti Ristrutturati ). A sub-segment of the Unlikely to Pay is now represented by the FNPE. Bad Loans Sofferenze Bad Loans Sofferenze Exposure to a borrower in a position of insolvency (not necessarily recognised by a Court) or a substantially similar situation, irrespective of the presence of any collateral. Same as previous classification of Bad Loans or Sofferenze. A sub-segment of the Bad Loans is now represented by the FNPE. Including FNPE (*) FNPE may become a Forborne Performing Exposure if: 12 months have passed from last allowance No past due from last allowance occurred (*)FNPE: Forborne Non-Performing Exposures Source: EBA, EBA/ITS/2013/03/rev1 24/7/2014 PwC 19

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21 11 Unlikely to Pay inflows and outflows from 2014 to 2016 Top 10 Italian banks (breakdown by bank) Outflows and inflows Unicredit Outflows (14.2) Inflows (4%) 15% % (20%) 19% (21%) (8%) Exposure 31Dec15 To Collected To bad loans Others From From non Other inflows Exposure 31Dec16 Outflows and inflows Intesa Sanpaolo Outflows (10.5) Inflows (8%) (11%) 11% 9% % (21%) (6%) Exposure 31Dec15 To Collected To bad loans Others From From non Other inflows Exposure 31Dec16 PwC 21

22 Outflows and inflows MPS Outflows (5.4) Inflows (3%) (6%) 9% 6% 4% 15.2 (19%) (2%) Exposure 31Dec15 To Collected To bad loans Others From From non Other inflows Exposure 31Dec16 Outflows and inflows Banco BPM Outflows (5.1) Inflows (5%) 22% 3% 6% 11.5 (10%) (23%) (2%) Exposure 31Dec15 To Collected To bad loans Others From From non 22 The Italian Unlikely to Pay market Ready to tackle the challenge? Other inflows Exposure 31Dec16

23 Outflows and inflows Banco Popolare Outflows (4.1) Inflows (6%) 6% 8.7 (10%) 21% 1% (24%) (1%) Exposure 31Dec15 To Collected To bad loans Others From From non Outflows and inflows BPM Other inflows Exposure 31Dec16 Outflows (1.0) Inflows % 7% 5% 2.7 (5%) (11%) (18%) (2%) Exposure 31Dec15 To Collected To bad loans Others From From non Other inflows Exposure 31Dec16 PwC 23

24 Outflows and inflows UBI Outflows (2.8) Inflows (6%) 9% 5.1 (15%) 12% 7% (22%) (2%) Exposure 31Dec15 To Collected To bad loans Others From From non Other inflows Exposure 31Dec16 Outflows and inflows BNL (*) Outflows (2.0) Inflows % 2% 4.7 (4%) (5%) 26% (34%) (2%) Exposure 31Dec14 To Collected To bad loans Others From From non Other inflows Exposure 31Dec15 24 The Italian Unlikely to Pay market Ready to tackle the challenge? (*) BNL UTP exposure at 31Dec15

25 Outflows and inflows Banca Popolare di Vicenza Outflows (1.5) Inflows (3%) (8%) 24% 9% 4% 4.6 (21%) (1%) Exposure 31Dec15 To Collected To bad loans Others From From non Outflows and inflows Veneto Banca Other inflows Exposure 31Dec16 Outflows (1.7) Inflows % 6% % (6%) (11%) (32%) (1%) Exposure 31Dec15 To Collected To bad loans Others From From non Other inflows Exposure 31Dec16 PwC 25

26 Outflows and inflows BPER Outflows (1.9) Inflows % 4.0 (8%) 30% 4% (20%) (18%) (2%) Exposure 31Dec15 To Collected To bad loans Others From From non Outflows and inflows Carige Other inflows Exposure 31Dec16 Outflows (0.8) Inflows % 5% 5% 3.5 (8%) (8%) (11%) (0%) Exposure 31Dec15 To Collected To bad loans Others From From non Other inflows Exposure 31Dec16 26 The Italian Unlikely to Pay market Ready to tackle the challenge?

27 11 Outflows Top 20 Italian banks From UTP to Performing in 2016 (*) 6% 5% Banco Popolare BPM 4% 8% 3% 5% 6% 4% 3% 6% 8% 8% 4% UniCredit Intesa MPS Banco Sanpaolo Popolare BPM UBI BNL BPVI Veneto BPER CARIGE Gruppo Average Top top Banca Carige % 1% Credito Credito Valtellinese Valtellinese 6% 3% 5% 2% 0% 2% 0% 2% CA BP ICCREA BP di Bari Banca IFIS Banco di CR CR di Banca CA Cariparma BP di Sondrio ICCREA Banca Banca IFIS Banco di Desio CR di Bolzano CR di Ravenna Banca Cariparma di Sondrio Popolare di e della Desio Brianza di Bolzano Ravenna Findomestic Findomestic Bari 4% Average Average top Top From UTP to Collected in 2016 (*) 10% 11% 20% Banco Popolare BPM 11% 10% 6% UniCredit Intesa MPS Banco UniCredit Intesa MPS Banco Sanpaolo BPM Sanpaolo Popolare 20% 15% 11% 12% 5% 8% 8% UBI BNL BPVI Veneto BPER Gruppo Average Top UBI BNL BPVI Veneto BPER CARIGE Average top Banca Carige 20 Banca 20 40% 13% 7% 7% 11% 5% 18% 19% 7% 0% 12% Credito Credito Valtellinese CA Cariparma CA BP di BP Sondrio ICCREA Banca BP di Popolare Bari di Banca IFIS Banco di Desio di e CR di CR Bolzano CR CR di Ravenna di Banca Banca Findomestic Average top 20 Bari della Brianza Valtellinese Cariparma di Sondrio Desio di Bolzano Ravenna Findomestic Average Top 20 (*) Figures for BNL, ICCREA and Banca Findomestic refer to 2015 PwC 27

28 From UTP to Bad Loans in 2016 (*) 24% 18% Banco Popolare BPM 34% 32% 21% 21% 19% 23% 22% 21% 18% 11% 23% UniCredit Intesa MPS Banco UniCredit Intesa MPS Banco Sanpaolo BPM Sanpaolo Popolare UBI BNL BPVI Veneto BPER Gruppo BNL BPVI Veneto BPER CARIGE Average Average top Top Banca Carige 20 Banca 20 90% 17% 19% Credito Valtellinese 15% 12% 6% 25% CA Cariparma CA BP di BP Sondrio ICCREA BP Banca di Bari Banca IFIS Banco Banco di Desio di CR di Bolzano CR CR di CR Ravenna di Banca Cariparma di Sondrio Popolare di Bari e della Desio Brianza di Bolzano Ravenna Findomestic 35% 7% 19% 23% Average Average top Top Remained UTP in 2016 (*) 55% 60% 71% 62% 57% 57% 68% 51% 55% 74% 60% UniCredit Intesa MPS Banco UniCredit Intesa MPS Banco Sanpaolo BPM Sanpaolo Popolare UBI BNL BPVI Veneto BPER Gruppo Average Top UBI BNL BPVI Veneto BPER CARIGE Average top Banca Carige 20 Banca 20 61% 66% Banco Popolare BPM 69% 68% 74% 72% 87% 36% 45% 74% 72% Not meaningful 60% Credito Valtellinese CA Cariparma BP di Sondrio Credito Valtellinese CA Cariparma BP di Sondrio ICCREA Banca Popolare di Bari ICCREA BP di Bari Banca IFIS Banco di CR Desio di Bolzano Banca IFIS Banco di Desio e della Brianza CR di Ravenna Banca Findomestic Average Top 20 CR di Bolzano CR di Ravenna Banca Findomestic Average top The Italian Unlikely to Pay market Ready to tackle the challenge? (*) Figures for BNL, ICCREA and Banca Findomestic refer to 2015

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