ROME (Reuters) - Italy's government is working on new measures to help banks cope with a projected increase in unlikely-to-pay (UTP) loans due to the impact of the COVID-19 pandemic, the Treasury said on Wednesday.
The announcement comes as banks are expected to face a surge in problem loans once governments begin to withdraw measures deployed to keep firms afloat throughout the health crisis.
"We are studying a scheme aimed at managing UTP loans and avoiding a large destruction in corporate value," Treasury Director General Alessandro Rivera told a parliamentary hearing.
Unlike bad loans, UTP loans are not yet in default and could be recovered by returning borrowers to health.
Rome is also considering handing to state-owned bad loan specialist AMCO the role of helping firms that run into difficulty after gaining access to state guarantees, government sources have told Reuters.
Italy has guaranteed more than 210 billion euros ($248.22 billion) in debt that banks extended to virus-stricken companies.
Under a plan being studied by the Treasury, AMCO would take on loans guaranteed by the state that banks decide to offload, a document seen by Reuters showed.
In return for the loans, Italian banks would receive notes issued by an AMCO-sponsored vehicle. These notes could also be placed with third-party investors.
The plan is intended to allow banks to shed assets before they turn problematic, preserving capital reserves.
Despite pressure from Italy's main banking and industry associations, Rivera ruled out granting leeway to temporarily ease stricter EU rules on calendar provisioning for banks, which force lenders to write down impaired loans in full over a set number of years.
"To date, available data do not show a concrete negative impact triggered by these rules," Rivera told lawmakers.
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