Italy asks EU for 6-month extension of bad loan guarantees

Italy’s premier-designate Carlo Cottarelli presents lists Of ministers to president. (Bloomberg pic)

ROME: The Italian Treasury has asked for European regulatory approval of a six-month extension of its state-guaranteed program for banks’ bad loans, Finance Minister Giovanni Tria said.

“We just notified the European Commission of the request,” Tria said in an interview in Rome. The program, known as GACS, is “working well” and is helping lenders dispose of non-performing loans, he said in an interview Wednesday in Rome.

Under Tria’s predecessor, the Treasury had already signalled its intent to seek an extension to the plan, which expires on Sept. 6. The program allows banks 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. The Commission said at the time of approval that the mechanism would help lenders clean up their balance sheets and spur lending.

Italian banks are weighed down by about 258 billion euros (US$300 billion) of non-performing loans, according to Bank of Italy data for the first quarter of 2018. Banks including UniCredit SpA, Banca Popolare di Bari SCpA and Carige SpA have used the mechanism. Other banks have started the process to get the GACS