March 22, 2019 10:29 am

New rules for Italian NPL guarantees

Bad loans are still a major problem for Italian banks. Now the government in Italy is set to establish a new two-year state guarantee program to protect investments in NPLs. According to a Bloomberg report, “Italy allows banks to bundle their bad loans into securities for sale, while purchasing a state guarantee for the least-risky portions in order to make the debt more appealing to investors.”

According to the draft, the new guarantee will cover only senior tranches. Also, there will be a limitation on interest payments for lower tranches if returns are lower than expected. Firms hired to manage loans will be replaced if the guarantee is activated and interest paid is lower than projected for two consecutive years. The new guarantee will not be extended to UTPs. Bloomberg

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