ROME (Reuters) – The Italian government is working on new measures to help banks cope with a projected increase in UTP loans due to the impact of the COVID-19 pandemic, the Finance Ministry said Wednesday.
The announcement comes as banks are expected to face a sharp increase in bad loans after governments begin lifting measures to keep companies afloat during the health crisis.
“We are exploring a scheme to manage UTP loans and prevent significant erosion of corporate value,” Treasury CEO Alessandro Rivera said in a parliamentary hearing.
Unlike bad loans, UTP loans are not overdue yet and can be repaid by restoring the health of the borrowers.
Government sources told Reuters that Rome is also considering handing over state loan firm AMCO to help firms struggling to gain access to government guarantees.
Italy has guaranteed more than € 210 billion ($ 248.22 billion) of debt that banks have provided to virus-stricken companies.
According to the plan, which is being studied by the Treasury Department, AMCO will take out loans against government guarantees, which banks decide to ship, according to the document, which was reviewed by Reuters.
In exchange for the loans, Italian banks will receive notes issued by an AMCO-sponsored company. These notes can also be placed with third party investors.
The plan is designed to allow banks to dispose of assets before they become problematic, while maintaining capital reserves.
Despite pressure from major Italian banking and industry associations, Rivera ruled out the possibility of a temporary relaxation of the EU’s stricter calendar reserve rules for banks, which force lenders to write off impaired loans in full over a number of years.
“To date, the available data does not show a specific negative impact caused by these regulations,” Rivera told lawmakers.
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Report by Giuseppe Fonte and Valentina Za; editing by Kirsten Donovan, Gavin Jones and Cynthia Osterman