Illimity: new Italian bank promises loan renaissance

Italian banks have spent more than a decade trying to clean up dud loans. The pandemic has loaded more on to the pile. For self-proclaimed “new paradigm” bank Illimity this presents an opportunity.

Illimity combines small business loans with servicing bad debts. The bank unveiled ambitious growth plans on Tuesday to double profits and target returns on equity of 20 per cent by 2025.

Founder and chief executive Corrado Passera, former boss at Intesa Sanpaolo, claims tech enables the bank to target assets that other lenders shy away from. In Italy, there are plenty to choose from.

Shares up almost two-thirds since its listing in 2019 reflects faith in the bank’s ability to select the right sort of bad debts. These fall into two buckets: underperforming or unable to pay and non-performing or distressed. Illimity targets growth of €1.3bn from the €35bn of expected underperforming debts that the wider Italian banking system will generate over the next five years. These are businesses that it hopes will recover and will then require corporate financing services afterwards. Default rates will track the strategy’s success.

Distressed credit services present a bigger opportunity. It has already been buying up portfolios of distressed debts. Assets booked on the balance sheet as of the first quarter were €1.7bn, representing nominal debts of almost €9bn. Additional distressed debts with a nominal value of €180bn are expected to be generated over the next five years, of which Illimity hopes to buy up about €3bn of net new exposures.

Technology deals add to core banking profits. A deal with privately owned financial data company Ion, also announced on Tuesday, will add €90m to revenues by 2025. As part of the deal, Ion will take a 10 per cent equity stake in the bank.

Returns on equity this year should reach 10 per cent — almost double last year’s result. So far, Illimity has delivered as promised. That justifies its shares’ rich valuation of 1.3 times tangible book. Smaller and more specialised lending is breathing new life to a sector many wrote off as a dead end.

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