This content is from: Local Insights


Article 1, Paragraph 68 of Law 311 of December 30 2004 (the 2005 financial law) regulates for the first time recourse by local authorities to lines of credit.

Pursuant to Article 1842 of the Italian Civil Code, the opening of a line of credit is a contract where a bank is obliged to make available an agreed amount to the counterparty, for a stated period of time or for an indefinite time, with the right of the counterparty to use it or not, in whole or in part.

The limits set out for the indebtedness of local authorities are extended to entering into lines of credit, that is:

  • their use is permitted only to finance investments;
  • the annual amount of interest, including those due under other outstanding loans, notes and guarantees, should not exceed 12% of the revenues related to the first three items of the financial report of the second-last year preceding that of the transaction;
  • the provisional annual budget of the year should be approved together with the financial report of the second-last year preceding the transaction.

The council (consiglio) of the local authority must grant approval enter into a line of credit.

Any disbursement under a line of credit should be made against delivery by the local authority of the delegation of payment on its treasurer bank.

Drawdowns under the line of credit may not be deferred for more than three years from the date it is entered into, with the possibility for the local authority to contractually regulate the economic terms in the event of partial use of the facility.

Interest should be due exclusively on amounts properly disbursed, while the reimbursement of amounts due should be made in instalments including principal and interest, and the minimum maturity should be five years.

The rate of interest applicable should not exceed the maximum rate applicable to lines of credit, to be determined by decree of the Ministry of Economy and Finance in agreement with the Ministry of the Interior.

Lines of credit are also subject, like any other type of indebtedness, to the monitoring required under Article 41 of Law 448 of December 28 2001 and, in particular, to the report on the financial characteristics of the transaction to the Ministry of Economy and Finance.

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