MNI: Italy To Dilute NPL Plans After Backlash

The Italian government will water down plans to change rules on non-performing loans after an initial proposal to allow struggling borrowers to repay overdue debts at less than their nominal value spurred criticism from banks and the financial services sector, two sources close to the governing coalition told MNI.

Prime Minister Giorgia Meloni’s right-wing government is sensitive to market concerns about the functioning of the secondary market in NPLs, as well as to the risk of moral hazard and the danger that more borrowers than initially envisaged could benefit from the measure, the sources said.

“It will go slowly and will be greatly scaled down,” one source from the finance ministry told MNI, adding that the government had originally planned to approve the new law in August on the same day as a windfall tax on banking profits from which the government has also been forced to partially backtrack.

After seeing the negative market reaction to the bank tax plans, which had divided the government, Meloni herself decided to downscale the NPL measures, the source told MNI.

The original proposal would allow private individuals or small companies with debts of less than EUR25 million which fell into arrears between 2018 and 2021 to repay the original loan at its price in the distressed loan market plus a 20% premium. This premium and the EUR25 million limit are now both likely to be modified, the sources told MNI.

MP Saverio Congedo from Meloni’s Brothers of Italy party, who presented a draft bill containing the original measure in the lower house Chamber of Deputies, told MNI that the government wanted to avoid ramming it through parliament in a “blitz”, but that there were several legislative routes through which it could become law, including a proposal in the Senate or via official promotion by the government itself.

AVOIDING CLASHES WITH EU RULES

Congedo’s proposed law should be seen as a “basis for discussion base rather than an armour-plated text,” he said, adding that he saw room for an agreement with opposition parties.

Parliamentary hearings will give a voice to concerned parties including banks and the financial industry, to help form lawmakers’ decisions, Congedo said, adding that he thought the proposal could become law in early 2024, once work on the 2024 budget is out of the way. One possibility could be to attach the measure to the budget, he said in answer to a question from MNI, though he saw that as less likely than normal parliamentary approval.

The government will be careful to assessing whether any new NPL rules clash with the political push for harmonised regulation across the eurozone, the sources said, a danger highlighted by senior European Central Bank banking supervisory official Kerstin af Jochnick in a recent interview with MNI. (See MNI INTERVIEW: Italy NPL Plans Stray From Norm-Bank Supervisor)

“It is in our interest for a single market in NPLs to work well,” one of the sources said, noting that he saw no conflict with EU directives.

Af Jochnick’s concerns are “premature”, said Congedo, adding that any such concerns could be addressed during in the legislative process.