category may return to the performing loans category ; indeed, a significant number did so, even in the extremely difficult conditions of recent years. these loans represent “ active ” credit relationships ; it is very likely that even if they experience a particularly difficult phase, debtors will be able to turn a corner and resume the payment of their debts. bis central bankers ’ speeches as for bad loans, both the write - downs already made by banks and the underlying collateral must be taken into account. net of write - downs, the amount of bad loans drops to €87 billion, of which €50 billion backed by collateral worth an estimated €85 billion, while the remainder are backed by personal guarantees estimated at €37 billion or are unsecured. the value of the real - estate collateral in the balance sheets of italy ’ s main banks was revised downward following the euro - area asset quality review ( aqr ) of 2014, which was conducted using independent, comprehensive and prudent estimates. the average revision was about 10 per cent, compared with 13 per cent for all the euro - area banks subject to review, confirming that the valuation criteria used by italian banks were substantially correct. in the period following the aqr, the decline in italy ’ s real estate prices was moderate ; it is also worth recalling that mortgages disbursed by italian banks have a lower loan - to - value ratio than in the other main european countries. as recent analyses have shown, the bad loan recovery rates actually observed, including in the last few years, are generally in line with the valuations banks use in their balance sheets. this confirms that not even for bad loans can an accurate assessment of their value be based on the assumption that they will be sold immediately. the market value of a bad loan basically depends on two factors : the investor ’ s profit target and recovery times ; higher profit expectations or longer recovery times mean lower prices. regarding the first factor, in recent years virtually the only buyers in the market for npls have been non - european private equity funds seeking very high returns, i. e. 10 to 20 per cent, well above italian banks ’ return on equity, which still averages just under 5 per cent. as for the second factor, the reforms recently introduced to significantly speed up the credit recovery process could have a major impact on the value of bad loans ; they must therefore be given the time they need to bear fruit. it will also be some time before the necessary improvements are achieved

the bank of italy soon, before the end of next september. important private initiatives undertaken recently, such as the establishment of the atlante fund and other instruments aimed at supporting ailing banks ( including those in the mutual bank sector ), seek to help banks successfully navigate this delicate transitional phase. the initiatives come as a response to the new european crisis management framework, whose rigid application restricts states ’ ability to intervene, even when the aim is to avoid contagion and maintain financial stability. but there is still much to be done to improve banks ’ industrial strategies. the stress test of europe ’ s largest banks, coordinated by the eba and conducted by the ecb on the euro area ’ s “ significant ” institutions, has almost been completed. the results will be published at the end of this month. exercises of this kind are now a standard part of the supervisory toolbox ; the stress test results, along with many other quantitative and qualitative factors, are used by the supervisory authorities to form a comprehensive assessment of the situation of individual banks. since stress testing is just one of many factors considered by supervisors, the results for the banks tested must be analysed and interpreted in detail. bis central bankers ’ speeches stress tests are hypothetical exercises that are based on highly adverse macroeconomic scenarios and generally have the greatest impact when the economy is emerging from a protracted, severe recession, as in italy. in designing the test, the eba used a static balancesheet approach, i. e., one that deliberately disregards the measures that banks would surely adopt over the 3 - year period under consideration to mitigate the negative effects of the hypothetical shock. the authorities in charge of the exercise have clarified that, unlike in the past, any capital guidance derived from the stress test outcomes does not in itself constitute a binding capital requirement to be met by a certain date. in any case, the risk that the exercise could trigger procyclical effects in a fragile macroeconomic environment is to be avoided. in response to the market uncertainty that followed the uk referendum, the italian government notified the european commission of its plan, which was approved, to guarantee new bank bond issues until the end of this year and only where strictly needed. as in the past, the banks that take advantage of the guarantee, which will be priced at market terms, must comply with the european state - aid rules. european legislation also allows states to take precautionary measures, including recapitalization,