Italy Bad Bank Feasibility to Be Verified Soon, Visco Says

  • Italy seeking to accelerate banks' disposals of bad loans
  • State could have limited participation in such an entity

The feasibility of a project to create an asset management company for non-performing loans will be “conclusively verified” over the next few weeks, Bank of Italy Governor Ignazio Visco said.

We are in the process of verifying “the real interest of potential investors and of the banks for an asset management company able to buy and manage deteriorated loans, operating at market conditions,” Visco said in a speech at the World Savings Day event in Rome Wednesday. The state could have a limited participation in such an entity, or none at all, Visco said, adding that purchases might be financed through government-backed bonds.

Italy is seeking to accelerate banks’ disposals of bad loans, which reached a record high of 198.5 billion euros ($220 billion) in August as low interest rates keep pressure on profit. The Italian government has also passed rules to shorten the time it takes to banks to seize assets and to deduct loan losses from their tax bill as it seeks to bolster lending growth.

The project has been blocked for months by the European Commission, which considers any State involvement in the disposals of bad loans as possible state aid. Italy Finance Minister Pier Carlo Padoan said in September that the two parties were in technical discussions to find a solution.

Italy banks disposed of 11 billion euros of bad loans, about 2 percent of total existing non-performing loans, between 2012 and 2014, Visco said. The limited number of transactions was also due to the bad management of loans by many banks, Visco said, adding that state intervention would help kick-start the market for bad loans.

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