Italian government bonds (variously termed: BoT, CcT, BTp, CTz) are placed by the Economic Ministry by means of an auction, which only qualified operators can take part in directly. The latter submit bids via an electronic system. In the past, bids used to be submitted in sealed envelopes: the electronic channel was set up in 1994.

Bad bank
A bad bank is a company set up in order to receive (by contribution or transfer) anomalous receivables. A bank sets up a new company whose capital it controls. Part of the bank’s receivable portfolio is transferred to the new company. The receivables transferred are anomalous, toxic, or non-performing; for this reason the new company is called a bad bank.

Bail-Out Fund
The European Financial Stability Facility (EFSF, which is simplified in the media to the Bail-Out Fund) is a Special Purpose Vehicle created by twenty-seven member States of the European Union on 9 May 2010 following the economic crisis of 2008 – 2010, for the sole purpose of financially helping the Member States, thus preserving the financial stability of the euro-zone in the case of economic difficulty. Formally, it is a company set up under Luxembourg law and is based in Avenue John F. Kennedy 43 in Luxembourg, and its current President is the German Klaus Regling.

As from July 2012 it will be replaced by the European Stability Mechanism, with the provision that financial assistance to insolvent countries depends on the participation of the private sector (the so-called bail-in).

The benchmark is the government bond taken as a reference to calculate the spread with yields on German Bunds.

It is the buffer of temporary additional capital which the EBA, the European Banking Authority, has asked banks to collect as a precaution against any external shocks. Credit institutions must achieve a Core Tier 1 ratio of 9% by the end of June.

Buoni del Tesoro Poliennali
BTPs (Italian long-term treasury bonds) are issued with 3-, 5-, 10-, 15- and 30-year maturities. They are medium/long-term bonds particularly suitable for those investors who want regular payments every six months.

This refers to the market value of a company’s shares, and is calculated by multiplying the number of shares by their market price, which can differ even significantly from the par value. For listed companies, capitalisation is an important figure because it tends to be associated with the stock’s level of liquidity. This is mainly due to the fact most share indices attribute greater weight to companies with higher capitalisation.

Carry trade
This is used to increase the yield of a financial operation by correlating the level of interest rates and currency trends. Funds are taken from a country with a low cost of money and they are then used in a country with high interest rates. In the case of government bonds, “carry trade” indicates the use of liquidity acquired by banks thanks to the ECB’s “maxi-auction”. The resources allow the banks to carry trade government bonds: money borrowed at 1% is used to buy government bonds (BTPs with 2-, 3- or even 10-year maturities) and to earn the difference between the higher yield and the cost of the loan.

Chirographary (unsecured debt)
The word chirographary derives from Greek “chiros-graphos”, where “chiros” means hand and “graphos” means writing. It means that the loan derives from a signed document. In relation to receivables, this expression is used to indicate a loan which is not backed, for example, by a mortgage, but only by the debtor’s word.

Securities a borrower offers to a lender to secure a loan. Should the loan not be repaid, the collateral is attributed to the creditor. The ECB, for example, accepts bonds as collateral in its operations to refinance credit institutions. Essentially, banks obtain loans from the European Central Bank and pledge debt securities.

Common equity
Common equity consists of share capital plus reserves and is considered the highest quality component of a bank’s equity. Basel 2, which sets higher capital ratios for banks, requires that half the Tier 1 equity consists of common equity. The other half is of equally high quality compared to the other components of the capital structure, although not of the same calibre as ordinary shares or retained earnings.

Core Tier 1
Core Tier 1 is one of the main capital ratios used to assess the solidity of banks. It is a bank’s primary capital, made up of shares, reserves arising from retained earnings net of taxes, and some hybrid securities. The higher the Core Tier 1, the more solid the bank. The stress tests carried out by the European Banking Authority (EBA) set a minimum threshold of 5%, but now the EU is asking to increase it to 9%.

Corporate bond
Debt securities issued by companies in order to collect money to fund their growth. They are usuallyy similar to debt securities with long-term maturities or instruments which normally generate constant interest for a number of years, with medium or long-term maturities. Corporate bonds are generally offered by direct sale through Italian financial institutions (banks and financial planners), or through secondary markets. This instrument is suitable for those who wish to stash their money shielding their capital against inflation, and who have a medium to low risk propensity.

Credit crunch
The term means a restriction in lending. Credit crunch occurs when banks, for various reasons, provide fewer loans to companies and households and/or when they lend money at ever higher interest rates. This situation creates serious problems for companies and households and, consequently, can deepen an economic crisis.

Credit insurance
Credit insurance allows companies to reduce or transfer the risks of default of their customers and to transform them into growth opportunities. Entrepreneurs can cover (total or partial) losses on receivables, securing support in the process of taking on and managing trade receivables, prior evaluation of customer solvency and a continuous monitoring service, compensation for losses suffered and debt collection.

Credit watch/ Under review/ Rating watch
For Standard&Poor’s, credit watch indicates a likely, imminent rating downgrade of sovereign debt, with at least a 50% chance that a rating cut will be decided within 90 days. The same concept is indicated by Moody’s using the expression “rating under review” and by Fitch as “rating watch”. It is a short-term warning, focused on events that can lead to a rating being observed particularly closely.

Credit default swaps (CDSs) are financial instruments that act as insurance policies. By paying a premium, any institutional investor can insure itself against the default of a State or a company: in the case of default, whoever has sold CDSs (i.e. the policy) must compensate the loss by returning the whole capital to the investor. CDSs are, therefore, instruments which offer purchasers protection on their investment. For this reason the restructuring of Greek debt has created problems: since Greece did not formally default, CDSs were not triggered.

Debt agency
In several euro-zone countries, but not in Italy, the management of public debt is entrusted to a dedicated structure. Germany, France, and Spain have set up public debt agencies which operate in compliance with the guidelines issued by their respective Economic Ministries. The level of specialisation of the agencies’ employees is very high. In some countries, the creation of bodies detached from ministries has enabled direct recruitment from big banks – by offering appropriate salaries – of “public” operators to manage auctions, buy-backs, derivatives, and liquidity on behalf of the State. The agencies are transparent and dedicated to market disclosure.

Dividends are profits which a company decides to distribute to its shareholders at the end of each period, as remuneration for invested capital. When companies pay out dividends, however, their share price falls following the coupon stripping.

Dividend yield
The dividend yield (the dividend/price ratio) corresponds to the ratio between the latest dividend per share paid or announced to shareholders and the latest share price. It is used as an immediate yield indicator, independent of the share price performance.

Deleveraging is the reduction of financial leverage, the divestment carried out by repaying accrued debt with available liquidity or selling financial assets held to raise cash.

It is a term used when a rating agency negatively revise, i.e. lowers, the level of credit quality, i.e. the level of reliability in regularly repaying creditors, attributed to an issuer of shares and bonds. Such a downgrade is possible both for private companies and Government bodies, which will be forced to pay more for the money they want to borrow on the market after they have been downgraded. The debt crisis in the euro-zone has provoked a string of downgrades of countries in the area. It started with Greece at the beginning of 2010, then in 2011 also Portugal, Ireland, Spain, Italy, Cyprus, France and Austria saw their rating downgraded; only Germany, the Netherlands, Finland and Luxembourg maintain their triple A rating in the euro-zone.

Duration is an index which measures the speed with which invested capital will be repaid. Normally, a longer duration is accompanied by greater financial risk for the security: therefore, it is important to consider this index should there be a significant risk of default on the part of the issuer, as a change in rates is accompanied by a change in the price. The longer the security's duration, the sharper the price change.

The European Banking Authority is a body of the European Union based in London which as from 1 January 2011 has the duty of supervising the European banking market. It has legal status and its primary objective is to protect the public interest, contributing to the stability and effectiveness of the financial system to the benefit of the EU economy.

All the EU banking supervisory authorities take part in the EBA. The Authority, which replaced the Committee of European Banking Supervisors (CEBS), must ensure the public interest and the stability of the financial system.

ECB deposits or Deposit facility
European banks can deposit their liquidity overnight at the so-called ECB deposit facility. By doing so the banks receive a very low rate compared to the interest they could earn by placing it on the market. The fact that during 2011 deposits reached a record level showed that banks were afraid of placing their liquidity on the market.

The EFSF is the European Financial Stability Facility created by euro-zone countries. The initial endowment of 255 billion Euro has been increased to 440 billion Euro. The Fund can issue triple A rated bonds (or other instruments guaranteed by euro-zone countries) to finance struggling states.

The ESM (European Stability Mechanism) is the euro-zone’s financial assistance facility. It will be operational as from July 2012 with a capacity of 500 billion Euro, which will be available to countries in financial difficulty. However, some call for the endowment to rise to 1 trillion Euro. It will have the status of preferred creditor: should the loans not be repaid, it will be the private creditors who will bear losses. Its support will depend on the adoption of a fiscal adjustment programme. The ESM will replace the EFSF, the European Financial Stability Facility created by euro-zone countries.

The European Securities and Markets Authority (ESMA) has been operational since 1 January 2011. It has the duty of supervising financial markets and rating agencies so as to guarantee the stability of the EU’s financial system. It works closely with the two other new European authorities, the EBA (banks) and the EIOPA (insurance and pensions). It may suspend the publication of sovereign ratings in limited cases, when one Member State is negotiating an aid package or when doubts about a country’s solvency suddenly arise. The ESMA, in addition, coordinates the actions of the financial authorities and supervises the emergency measures adopted in critical situations.

Term used to define the group of instruments set up by the European Union and other authorities such as the ECB in order to create a safety net and ward off contagion from the debt crisis. For example, the EFSF and the ESM belong to it.

In finance the term indicates the percentage of reduction in the value of a security compared to its par value when it is accepted as collateral. In the discussions regarding turmoil in the euro-zone, the haircut corresponds to the loss that a bank or investor will suffer on a government bold they hold, should that country’s debt be restructured.

Impaired assets
Non-performing, substandard, restructured and past due loans fall under this category pursuant to Bank of Italy’s regulations consistent with IASs/IFRSs (see item)

Institutional investors
These are companies and bodies (banks, insurance companies, social security institutions, financial companies, mutual funds) which under the law or their own by-laws invest systematically in the securities market. They can be divided into technical investors (insurance companies); welfare investors (welfare funds, mutual insurance companies, etc.); and financial investors (financial holding companies, investment firms, banks, mutual funds).

Yield curve
The yield curve is the relationship which links the interest rates on securities with the respective maturities. In normal market conditions, the curve tends to be positive, with long-term rates higher than short-term ones. Between November and December 2011 the Italian curve, however, flattened off, a sign of tension over and lack of trust in Italy.

Liquidity crisis
The crisis on the financial markets has affected the interaction between credit risks, the market and liquidity (both funding- and market-wise) in unprecedented ways. Before the Greek crisis, European government bonds were considered risk-free. Since the euro-zone threatened private investors with a haircut (capital loss) should public debts be restructured, government bonds have been valued as a credit risk.

The International Monetary Fund is an organisation which includes the governments of 187 countries. It was created at the Bretton Woods Conference in 1944. The purpose of the IMF, which is based in Washington, is to ensure financial stability, support monetary cooperation, and promote international trade and sustainable growth.

IMF quotas
Each of the 187 countries members of the International Monetary Fund holds a capital quota based largely on its weight in the global economy. This quota determines the voting power of individual countries, as well as how much they can borrow from the IMF. In order to take account of changes occurred in the world economy since the foundation of the IMF in 1944, the quotas have been periodically revised. In 2012 the latest reform, which was started in 2006, will see emerging countries, including Brazil, India, China and Russia, increase their weight and enter the group of the 10 biggest quota-holders. The biggest individual quota-holder is the USA, with 17.4 percent.

Interbank fund
Current account deposits, unlike bonds, are guaranteed by the Interbank Deposit Protection Fund. This guarantee was recently reduced from 103 thousand Euro to 100 thousand Euro and protects every accountholder at every bank, regardless of the total number of accounts the saver holds. This means that it is possible to open an unlimited number of accounts with different banks which will all be guaranteed up to the value of 100 thousand Euro.

Italian BOTs (Buoni Ordinari del Tesoro, i.e. treasury bills) and other sovereign bonds are, on the other hand, guaranteed directly by the State: most Italian citizens are now familiar with the notion of spread, i.e. the differential between Italian BTPs and German Bunds that measures the markets’ trust in Italy.

The Libor (London Interbank Offered Rate) is a reference rate in the interbank market. It is calculated daily by the British Bankers Association on the basis of the rates required to grant a loan in a particular currency (among others, pound sterling, US dollar, Swiss franc and euro).

Long Term Refinancing Operations (LTROs) are the refinancing operations undertaken by the ECB, which can decide to intervene in the interbank market by lending banks money in two ways: MROs (Main Refinancing Operations), which are ordinary refinancing operations with a maturity of one week, and LTROs. The latter normally have 3- to 6-month maturity, extended in the current situation up to three years. The ECB also undertakes immediate interventions, defined as Fine-Tuning Operations (FTOs), to manage liquidity surpluses or deficits in the interbank market.

Off-the-run indicates government bonds that are no longer being issued. The Italian Economic Ministry can reoffer these securities through the marginal auction system. The price and quantity are determined by means of a discretionary award system within a minimum and maximum emission range referred to all bonds. On the contrary, on-the-run indicates bonds planned on the basis of the annual calendar of auctions.

Overnight index swap
The overnight index swap (OIS) is an agreement between two parties to exchange loans at a fixed rate for a set period. This rate reflects that expected on the overnight interbank market for the duration of the swap. This rate is considered less risky than the Libor.

Mark to market
It is the process for the daily revaluation of a portfolio of investment assets on the basis of market prices, different from that in which the value of the portfolio is calculated on the basis of the historic costs of purchasing the assets. The EBA, the European Banking Authority, has imposed the mark to market valuation for government bonds held by European banks. Such a valuation sharply penalises Italian institutions, and for this reason it is strongly contested by the Italian Banking Association.

Mid swap
Mid swap is an interbank rate adopted by banks to swap money, as happens for the better known Euribor. It is the arithmetic mean of the demand and supply of the interest rates the banks offer for each given maturity in order to swap cash on the interbank market.

Net exposure
Figure calculated by banks to express potential losses once due consideration has been given to hedging and other forms of risk protection. These can include derivatives such as credit default swaps (CDSs) and debt insurance contracts. American banks have started to provide growing data on their exposure to the European sovereign debt crisis, disclosing both gross and net exposure. The effectiveness of some risk protection measures adopted, such as CDSs, is nonetheless considered doubtful.

Non-performing loans (NPLs) are loans either in default or close to being in default, which may be secured or unsecured, for example by real estate assets.

P/E and dividend yield
P/E is the ratio between the market price of a company’s share and the earnings per share achieved by the business in the most recent period. The price/earnings ratio corresponds to the yield on a share, or rather indicates how much time is needed for the earnings arising from it to equal the price paid for its purchase. The lower the ratio, the more advantageous it is to buy the security.

Pay-out is the distribution of net profits in the form of dividends. In particular, the payout-ratio, i.e. the ratio between dividends paid and net profits for the year, is widely used in accounting. This index represents a company’s strategic choices as for the funding of its investments. The higher the ratio, the lower the share of net profits the company can use to finance its future projects. The company’s net profits can be put to only two uses: be distributed as dividends, thus increasing the pay-out, or be kept in the company, increasing its equity and so the rate of self-financing.

Repurchase agreements
Repurchase agreements (also known as repos) involve the sale of securities together with an agreement for the seller to buy back the securities at a later date from the purchaser. The repurchase price is obviously higher than the original sale price. On the repurchase date, the purchaser must have the securities available. It is, therefore, a kind of loan, the cost of which is given by the repurchase spread.

It expresses the valuation, formulated by a specialist private agency, of the creditworthiness of an issuer. Analysts rate corporate bonds, government bonds, individual shares or whole economic sectors. The rating provides financial operators with standardised information on the issuers’ level of risk and is important for investors who cannot independently analyse risk and credit. It is composed of an assessment expressed as letters ranging from AAA (the maximum level) to D (the minimum) for bond issuers, and of an outlook including concrete indications on analysts’ expectations. Being granted a rating makes it easier for issuers to set the price and place their securities.

Recession is a phase of the economy characterised by levels of production lower than those which could be achieved by using all available productive factors fully and efficiently. Technically we talk of recession when real GDP falls and remains negative for at least two consecutive quarters. If stagnation is accompanied by inflation, we talk of stagflation. On the other hand, economic growth means an increase in the main macroeconomic variables.

Record date
It is the mechanism introduced in Italy in 2010 aimed at establishing the legitimacy to participate in shareholders’ meetings of listed companies: the record date identifies the moment when the subject requesting to participate in the shareholders’ meeting must own the shares. This legitimacy is attributed to those who are owners of the shares on the seventh day of trading prior to the date of the shareholders’ meeting and who have communicated their wish to intervene via a qualified intermediary.

Real yield
Real yield means the earning offered by an investment net of inflation. In other words, it is necessary to compare the capital gain to the increase in the cost of living and to the reduced purchasing power.

In corporate finance, the Return On Equity (ROE) is an index of the profitability of equity. It summarises the business results of the company. It is a percentage index by which the net income produced is compared to the net capital or equity, in other words to the directly owned resources.

In order to assess whether a given value of ROE is good or bad, it is necessary to compare it with the yield on alternative investments (BoT, CcT, bank deposits, etc.), that is to assess the opportunity cost of investing in the company in question.

Secondary market
The secondary financial market is where outstanding securities can be traded until their maturity. It is the stage following the primary financial market: every security starts in the primary market and, after its issue and placement, moves to the secondary market, which covers all transactions after the auction; in other words, the existence of a secondary market ensures that securities can be sold prior to their maturity at market price. Logically, the two markets (which significantly vary in size) are opposites, but they handle the same goods, therefore more liquidity in the secondary market allows for more securities in the primary market.

Shadow banking
The shadow banking system is a network of unregulated operators which acts in parallel to the regulated system, from which it receives securities and other receivables, changing their duration, maturity and liquidity. It then returns them in the form of liquidity for new transactions.

The shadow banking system is financed through structured derivatives, thus creating liquidity which is in turn invested in long-term assets.

Sovereign funds
Public special investment vehicles controlled directly by the governments of the related countries and are used to invest in financial instruments (shares, bonds, property) and other assets. Sovereign funds have been created above all in oil-exporting countries: United Arab Emirates, Qatar, Norway.

Solvency II
Solvency II is a proposed EU directive, for which there is still no approved final text, which aims to revise the valuation of insurers’ solvency by taking into account quantitative and qualitative aspects affecting the company’s risk profile. Work started in November 2003, with the establishment of a permanent committee to prepare a draft framework law for the management of risk in the insurance sector.

Subordinate loan
A loan is termed subordinate when, should the issuer be put into liquidation, it will be repaid only after all senior debts, but before the share capital. Subordinate loans are of two levels: LOWER TIER 2 securities represent the most senior securities among the subordinates. UPPER TIER 2 securities are riskier, since they envisage the possibility (not the obligation) of deferring the interest payment.

The word spread indicates a difference or gap. In the case of government bonds, the spread indicates the gap between the yields of Italian and German government bonds, which are considered more reliable. The higher the spread, the higher the cost for the bond issuer, that is the State, to refinance its debt. High spreads could lead in the medium to long term to sovereign default or to drastic cuts in public spending and/or an increase in taxes to avoid bankruptcy.

Subprime mortgages are those loans granted to those who experienced problems in their credit history. They are loans to borrowers with no means to repay their debt. Subprime mortgages, which US banks used to supply generously despite the uncreditworthiness of applicants, were granted because the bank immediately transferred the credit risk to the financial market through securitisation, asset-backed securities (ABSs) and collateralised debt obligations (CDOs).

Takeover bid
A takeover bid is a public offer aimed at purchasing financial instruments. In the case of Italian companies with shares listed on regulated markets, anyone holding more than 30% of the capital is obliged to launch a takeover bid for the rest of the shares. In the case of crises and corporate restructurings, Consob (the Italian securities regulator) can exempt anyone buying a majority stake from making a takeover bid for all the shares.

Volatility is the extent of the change in price in a set period of time. Therefore, it measures the correlation between the change in a security’s yield and the reference market, expressing how much a security's price swings. It must be taken into account when assessing the risk of an investment. It can also concern the overall trend of an index: in periods of financial turmoil it tends to be high, as operators are especially sensitive to every piece of news which could potentially affect their propensity to buy or sell.

Account debtor
The account debtor is the individual or legal entity, either Italian or foreign, that entered or will enter into commercial dealings with the invoice seller and is therefore obliged to pay the supplier one or more receivables.

Book value per share
The Book Value per Share (BVPS) is a measure of equity expressed in monetary terms with reference to each share. It is obtained from the ratio between the book value of equity and the number of outstanding ordinary shares.

Cassa Compensazione e Garanzia
Cassa di Compensazione e Garanzia (CC&G) is an Italian Joint-Stock Company belonging to the London Stock Exchange Group. It ensures contracts relating to listed securities and transactions in futures and options, as well as on the NEW MIC, the interbank collateralised deposits market, are properly cleared and settled. CC&G therefore eliminates counterparty risk, acting as buyer in relation to the seller and vice versa, guaranteeing the successful performance of contracts.

Cost of credit quality
The cost of credit quality expresses the quality of loans to customers and is calculated as the ratio between the value adjustments on annualised credit and the receivables due from customers at year’s end: the lower the ratio, the less risky the bank's assets.

Eligible assets
In the Eurosystem’s refinancing transactions, eligible assets are securities that meet the eligibility requirements established by the European Central Bank for use as collateral to obtain liquidity. The list of eligible assets is published on the ECB website and is updated several times each month.

A measure of the earnings a company generated in proportion to the number of shares issued by said company. It is calculated as the ratio of net profits to the average number of outstanding issued shares net of treasury shares.

The Eurosystem includes the European Central Bank and the National Central Banks of the EU Member States which adopted the Euro in the Third Phase of the Economic and Monetary Union (EMU). Currently, fifteen national central banks participate in it. It is headed by the ECB’s Governing Council and Executive Board. 

Invoice seller
The invoice seller is the factoring contract’s counterpart who pledges to transfer to a factor all the receivables derived or deriving from its business operations conducted vis-à-vis another entrepreneur (account debtor).

The electronic wholesale market for government bonds (MTS) is a platform for trading Italian or foreign government bonds and state-guaranteed securities on the secondary market. The MTS market is reserved for professional investors. Bids may be made for minimum quantities of 2.5 million and depending on the instrument. The MTS is structured in the cash (spot trading), repo (repurchase trading), and coupon stripping (separate trading of strips) segments.

The New MIC is the segment of the e-MID (the electronic market for interbank deposits) dedicated to deposits in Euro with maturities up to a year. If features the New MIC Guarantee System managed by Cassa di Compensazione e Garanzia. Trades, which are settled in Target2, are carried out anonymously with protection against counterparty risk. The guarantee is provided by the collateral pledged by each member; a mutual insurance scheme, consisting of 10% of the collateral pledged by each member; and the interposition of CC&G between the counterparties for each concluded contract.

Non-performing loans
Cash and off-balance-sheet loans due from a party in default (even when not confirmed in judicial terms) or in broadly similar situations, regardless of losses estimated by the bank.

Non-recourse factoring
In non-recourse factoring, the seller transfers to the factor a receivable without offering any guarantee should the debtor default. The seller therefore guarantees the factor only the existence of the receivable sold, and not the debtor's solvency.

Outright purchases
With outright purchases, the factor entirely assumes the debtor's risk of default: therefore, it does not finance the receivable, but rather purchase it in full. The sum paid out to the invoice seller in this case is not an advance on the consideration, but the final collection of the credit, and therefore is not a liability for the invoice seller.

Performing loans
A receivable held by the bank due from customers deemed solvent and therefore able to promptly repay their debt as agreed.

Past due loans
Cash and off-balance sheet loans, other than those classified as non-performing, substandard or restructured loans, that are past due or have been overdrawn for more than 90 days as of the reference date.

Recourse factoring
In recourse factoring, the seller transfers to the factor a receivable guaranteeing the debtor will repay it. The seller therefore guarantees the factor both the existence of the receivable sold and the debtor's solvency.

Regulatory capital
Regulatory capital is the first protection against risks associated with the banking business. It is the algebraic sum of a series of positive and negative elements which, based on their acknowledged capital quality, may be included in the calculation, albeit with certain limitations. The bank must fully own the positive elements of which the capital is composed, so as to use them without restraints to hedge risks and losses. The amount of these elements does not include any fiscal expenses. Regulatory capital consists of Tier I and Tier II capital, net of deductions.

Restructured loans
Cash and off-balance-sheet loans for which a bank, because of the deteriorated economic-financial condition of the debtor, agrees to modify the original terms and conditions resulting in a loss.

Return on Assets (ROA) is and indicator that measures the profitability of the invested capital or the business carried out. It is the ratio between gross profit and total assets.

Return on Core Assets (ROCA) is an indicator of the profitability of the assets dedicated to the core business. It is calculated as the ratio between gross profit minus net earnings on debt securities and the total assets excluding debt securities.

RWA (Risk Weighted Assets)
Risk weighted assets are cash and off-balance-sheet assets (derivatives and guarantees) classified and weighted based on several risk-related ratios, in accordance with bank regulations issued by the supervisory authorities concerning solvency ratios.

Solvency is a debtor's capacity to meet its obligations.

Substandard loans
Cash and off-balance-sheet loans to entities in a temporary state of objective difficulty which can be overcome in a due period of time. Substandard loans also include the so-called “objective substandard loans” in accordance with Bank of Italy’s regulations.

Tier 1 capital
Tier I capital is composed of the following elements defined by Bank of Italy as being of primary quality: paid-in share capital, reserves, the provision for general banking risks, and innovative capital instruments. The sum of these elements, after deducting treasury shares, goodwill, intangible assets, and losses recognised in previous financial years and in the current one, represents the Tier 1 capital.

Total receivables
The sum of outstanding receivables purchased by the factor as of a specific date.

Turnover is the gross flow of the receivables sold by the customers to the factoring company in a specific period of time (for instance, one year).

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