"THE COURT EFFECT ON THE PERFORMANCE OF NPLs. Extension of the duration evaluation model for an exact pricing"

Abstract

There is this common knowledge among the same population on how much the Italian justice system is deficient in terms of quantity and quality. The slowness of the proceedings, the endless expectations, and continuous appeals only slow down and creates doubt in Italian companies and discourage any foreign investment. Inevitably all these issues are widely reflected in the world of Non-Performing Exposures, in fact, as it is possible to imagine considering for example the case of positions guaranteed by mortgages (therefore secured positions) whose value is given by the escussion of the properties given as collateral, obtain those said assets (and their monetary value as a consequence) within a reasonable timeframe or the opposite result in a substantial difference from a ROI perspective. This thesis aims to analyse the current context of the NPLs, by studying historical trends and possible future scenarios, and then dive into the Italian justice system (comparing it to the various EU member countries). Of this last one, it will be analysed various variable of performances like the disposition time, the clearance rate, and other meaningful ones. After a descriptive statistical analysis of these variables, besides seeing the significance of the relationship with the duration of the procedures, an attempt will be made to create a scoring system that reflects the actual capacity of the courts (and its staff) to manage and dispose of the outstanding load. This new score system gives importance to these performance-based statistics about the staff but at the same time includes the duration (which was the only element considered in the past valuation models of impaired positions) and other variables linked with the structure of the tribunal, this will allow the formation of correct expectations on the actual price of the above positions that reflect the "real true value" of the courts, providing an overview that can offer food for thought for court presidents and possible arbitrage opportunity for specialized investors.