ROME: Italy must solve the problem of soured loans weighing on its banks’ balance sheets if it is finally to leave behind a long economic and financial crisis, Economy Minister Pier Carlo Padoan said.
His comments came after Prime Minister Matteo Renzi on Monday promised quick measures to help lenders offload part of the 350 billion euros in problematic loans they have accumulated in Italy’s worst recession since World War Two.
Expectations of action on bad loans fuelled strong gains in shares of Monte dei Paschi di Siena and Banca Carige on Tuesday, against a sharply lower Italian banking sector.
The two lenders are seen as the weakest among large Italian banks and need to raise cash to boost their capital.
Italy’s weak and fragmented banking sector has seen non-performing loans triple since 2007, weighing down bank balance sheets, squeezing credit to consumers and business and damaging prospects for wider economic recovery.
Citi analysts said any measures on non-performing loans would benefit Italian banks by promoting disposals, supporting new lending and making it easier for potential merger and acquisition deals to take place.
Options under consideration include changing the tax impact of loan losses, allowing a full immediate deduction of credit losses from banks’ taxable income, new legislation to speed up bankruptcy procedures and setting up a state-sponsored vehicle to buy bad loans off banks.
The aim of a bad bank vehicle, Padoan said, would be to create a market where banks could sell their bad loans at fair prices. He mentioned an average price corresponding to 15 percent of a loan’s nominal value.
A significant gap between the book value of bad loans and what potential buyers are ready to pay currently holds back sales of soured loans in Italy.
On average, Italian banks have written down the most problematic loans by around 60 percent and are reluctant to book further losses to match investor demand.
Padoan said he hoped Italy would reach a compromise with European Union authorities over its bad bank project and that a new meeting on this had taken place on Tuesday.
