From bad banks to guaranteed ABS

Author: IFLR Correspondent | Published: 21 Mar 2016

The success of the government’s guarantee mechanism in helping reduce non-performing loans depends on some legal fine-tuning and banks’ cost analysis  

The stock of non-performing loans (NPL) on the books of Italian banks has steadily increased over the years. According to data collected by the Italian Banking Association (ABI), at the end of 2015 the total exceeded €200 billion ($219 billion). Pressure on the Italian government to properly address the issue has risen alongside these bad debts. A structural gap between bid and offer prices has made difficult any attempt by banks to dispose of these assets. For a long time now, market players and regulators have been waiting for a solution capable of forcing the banks to reduce their stock of NPLs or, at least, stimulate sales by mitigating the losses (and the erosion of their regulatory capital). Against this backdrop, the Italian government has been negotiating...