ROME: Italy’s banks could reap significant benefits if they were allowed to unload around 100 billion euros of bad loans, a third of their troubled loans, to a specially created vehicle, the Bank of Italy said on Thursday.
The Italian government is in talks with European Union authorities over the creation of a “bad bank” that would help domestic lenders get rid of loans that went sour during a three-year economic recession.
The sticking point is whether Italy’s bad bank would represent state aid under EU rules. That would entail inflicting losses on bank shareholders and junior creditors before tapping taxpayers’ money.
Italy wanted to provide the vehicle with a state guarantee, but that would require applying state aid rules.
To avoid such “burden sharing” measures, an Italian bad bank would buy soured loans from banks at market prices, the Bank of Italy said in its twice-yearly Financial Stability report.
However, industry experts say the Italian market for non-performing loan is so thin and assets so diverse that it is difficult to establish a market price for them.
And at present sales are held back by a significant gap between the book value of bad loans and what potential buyers are ready to pay.
The Bank of Italy said Italian banks held 350 billion euros in troubled loans at the end of last year, or 17.7 percent of the total, up 12 percentage points from the onset of the financial crisis in 2008.
A special vehicle could purchase at least the most problematic corporate loans in the portfolio, in a bid to boost sales that amounted to less than 7 billion euros in 2013-2014.
Some of the approaches being considered envisage purchases for a gross value of around 100 billion euros, the central bank said.
Offloading the bad debt would make it easier for banks to provide fresh credit, the Bank of Italy said, forecasting a further contraction this year in loans to non-financial firms.
