MILAN (Reuters) – The Italian government will take measures in coming weeks to help lenders offload bad loans, which have become the number one problem for banks in the euro zone’s third-biggest economy and threaten to hold back a fragile recovery.
Speaking at an event at Milan’s stock exchange on Monday, Prime Minister Matteo Renzi said the measures would help banks manage bad loans and would put them on a level playing field with lenders in other countries.
“I think in the next few weeks, there will be a move on bad loans and in general on instruments that will give our banking system the same regulatory conditions as other European countries,” Renzi said, adding tackling bad loans was a priority for the Italian government.
As Italy struggles to emerge from its longest recession since World War Two, bad loans at its lenders totaled some 350 billion euros ($391 billion) at the end of last year, forcing banks to set aside capital to cover for potential losses.
Italy has been considering setting up a “bad bank” type of vehicle that would issue bonds guaranteed by the state to finance the purchase of these bad loans, but this project has stumbled because of European rules on state aid.
The government is also mulling allowing banks to reap tax benefits from loan losses in a single year rather than having them spread over five years, as is currently the case.
A third measure is streamlining bankruptcy procedures to make it easier for lenders to seize assets given as guarantee against loans by borrowers who default.
Those two sets of measures are seen as a less radical solution to the problems of sour debts than setting up a bad bank but easier to implement and would bring Italy in line with other European countries.
Top executives at Italy’s two biggest banks, Intesa Sanpaolo <ISP.MI> and UniCredit <CRDI.MI>, welcomed Renzi’s commitment.
UniCredit Managing Director Roberto Nicastro said the government was moving in the right direction because bad debts were hampering new lending and absorbing banks’ capital.
“We are talking a huge amount of money that is blocked and cannot be used to help the economy at a time when it is trying to recover,” Nicastro said.
(Reporting by Silvia Aloisi, Gianluca Semeraro and Giulio Piovaccari; Editing by David Holmes)