(1 February 2016 – Italy) Italy’s deal with the European Commission on state guarantees for banks’ bad loans will help lenders reduce their stock of deteriorated debt, Bank of Italy Governor Ignazio Visco said on Saturday.
The guarantee mechanism “will prove useful for facilitating the divestment of bad debts,” Visco said in a speech at the annual Assiom-Forex conference in Turin.
“There has been mixed market reaction to the announcement of the agreement; a detailed analysis of its terms and effects will improve its reception.”
The European Commission agreed last week on a plan to help Italian banks offload bad debts, ending months of negotiations on how to ease the burden on the nation’s lenders without breaching European rules. Banks will be able to bundle their bad loans into securities for sale, while purchasing a state guarantee for the least-risky portion to make the debt more appealing to investors.
The reduction of the stock of bad loans will take time, according to Visco, who said large volumes of bad debt “depresses market assessments of banks, makes bank funding costlier, and generates high capital requirements.”