Italy’s Treasury distances itself from proposal on bad loan market

By Giuseppe Fonte

ROME (Reuters) – Italy’s Treasury has no plans to adopt measures impacting the country’s 307 billion euro ($328 billion) bad loan market, a ministry source said on Wednesday, after some ruling lawmakers resubmitted a measure to protect borrowers if they fall behind in repaying bank debts.

The parliamentary proposal was submitted by four lawmakers from Prime Minister Giorgia Meloni’s Brothers of Italy party and risked reviving uncertainty among investors.

However, the source clarified the amendment was not backed by the economy ministry, paving the way for its formal rejection at a later stage.

Italy’s non-performing loan market is the largest in Europe. The way it works is that investors buy bundles of soured loans at a discount from banks which are keen to get them off their balance sheets.

Those investors then seek to recoup the money from the original borrowers, sometimes using debt recovery firms such as Milan-listed DoValue which also has operations in Greece and Iberia.

Politicians had already unnerved investors in August through proposed legislation that would give borrowers the right to repay their original loan at the cut price at which the creditor bank sold it on, plus a modest 20% premium.

The four lawmakers have been trying to relaunch an amendment that had already been rejected in September with the aim of making it easier to apply the initial legislation.

If approved, the proposed changes would have made it obligatory in banks’ sales of bad loans to include the price of individual loans in the contracts, even when sold in bulk.

Investors therefore would have been unable to act in court to recover soured loans from borrowers if the contracts did not comply with the new requirements.

In a bulk sale of credits, the relevant price for the market is that of the overall portfolio, which is an average of the prices of the single loans.

When the amendment was first presented to parliament, investors told Reuters it was impossible to retroactively price individual loans in a meaningful way.

Attempts to change the rules of the game with retroactive effect are perceived as damaging, the people added at the time.

Bankers said Meloni had shocked markets in August by announcing a one-off 40% tax on banks’ net interest margin. The government later changed the measure to give banks the option to boost their reserves instead of paying the levy.

($1 = 0.9369 euros)