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Italy Said to Seek 6-Month Extension of Bad-Loan Guarantees

Updated on
  • Banks are allowed to purchase guarantees after bundling loans
  • Italian Treasury started process to get EU Commission Approval

The UniCredit SpA headquarters stand in Milan,.

Photographer: Stefan Wermuth/Bloomberg

The Italian Treasury is seeking European regulatory approval for a six-month extension of its state-guarantee program for banks’ bad loans, a person with knowledge of the matter said.

The Treasury has reviewed options before deciding to ask the European Commission for an extension of the current program at similar conditions, said the person, who asked not to be identified because the matter isn’t public. Italy started the process to get Commission approval to extend the program, known as GACS, that expires in September, the person added.

A spokesman for the Treasury declined to comment.

"This is a good news for Italian banking system, because it will increase the number of deals and spread them out to next year,” said Riccardo Serrini, general manager of Prelios Group, an Italian asset management and credit servicing firm. “That said, the program has a big limitation of only applying to bad loans. It should be extended to unlikely-to-pay loans and leasing contracts in order to be more effective.”

According to Italy’s scheme, banks are able to bundle their bad loans into securities for sale, while purchasing a state guarantee for the least-risky portions in order to make the debt more appealing to investors. The plan was approved by the Commission in 2016 and got a one-year renewal last year until Sept. 6. The mechanism will help lenders clean up their balance sheets and spur lending, the Commission said at the time of approval.

Italian banks are weighed down by about 270 billion euros of non-performing loans, prompting the ECB to press lenders to make plans to reduce that figure.

"There has been a surge lately in the interest on GACS from several institutions that are forced to take stronger action in order to clean up their books,” said Jacopo Ceccatelli, chief executive officer of Marzotto SIM SpA, a Milan-based broker-dealer. “The possible six-month extension should be seen as moderately positive for the sector, allowing more time and hopefully more banks to take advantage of GACS and so strengthen their balance sheets.”

Banks including UniCredit SpA, Banca Popolare di Bari SCpA and Carige SpA have used the mechanism. An increasing number of banks have started the process to get the GACS in recent months. Banco BPM SpA is seeking the state-back guarantee for senior tranches of 5 billion euros of NPLs, while BPER Banca SpA have applied for GACS for at least 3 billion euros ($3.6 billion) of bad loans.

(Updates with analyst comment in fourth, seventh paragraphs.)
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