Italy is taking a break before renewing its bad loan program, sources say


An Italian flag flies in front of Piazza Navona, as Italians remain under lockdown to prevent the spread of the coronavirus disease (COVID-19), in Rome, Italy, April 4, 2020. REUTERS/Alberto Lingria

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ROME, June 9 (Reuters) – Italy will allow a state guarantee scheme used by banks to rid itself of billions of euros in bad debts to expire in June, while it finalizes a stricter version to be submitted to European Union authorities in September, two people familiar with the matter said. said.

Since its launch in 2016, Italy’s state guarantee scheme “GACS” has helped Italian banks rid themselves of 96 billion euros ($103 billion) of bad debts by mitigating the blow of the disposals to their profits .

The scheme expires in its current form on June 14 and an extension must be approved by EU competition authorities, who cleared the initial measures after ensuring they complied with EU rules in matters of state aid.

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Talks between Rome and Brussels over the renewal of GACS guarantees will enter the home stretch from September, one of the sources said.

The Treasury aims to use the interim period to make changes to the scheme, tightening its conditions to reduce risks for taxpayers. Read more

Under the GACS program, banks can buy Italian Treasury collateral at market prices to secure the least risky notes when selling bad debt repackaged into securities.

At the end of 2021, investors held €11.6 billion of Italian state-guaranteed debt.

Overambitious loan recovery plans, the economic downturn and court closures caused by the COVID-19 pandemic have caused recoveries on several GACS transactions to be delayed from initial projections, a Treasury document prepared for the parliament.

Of 33 deals listed in the document seen by Reuters, 19 were underperforming against the business plan, with cash inflows in some cases not even reaching half of the amount targeted by the plans.

The Treasury had considered introducing measures to allow a restructuring of GACS transactions, but one of the sources said this would have encountered legal obstacles and would have required the unanimous approval of all noteholders.

The success of the GACS program in bridging the price gap between buyers and sellers has made Italy Europe’s largest market for delinquent bank loans. These debts now represent less than 4% of total bank loans, compared to a peak of 18% in 2015.

Government support measures last year to help businesses cope during the pandemic pushed bankruptcies to a record high, but they now face principal repayments on part of 280 billion euros in loans guaranteed by the state, just as they grapple with record energy and raw materials. material prices.

($1 = 0.9315 euros)

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Reporting by Giuseppe Fonte in Rome and Valentina Za in Milan. Editing by Jane Merriman

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