A senior banker involved in the industry warned on Friday that a bill being proposed by the Italian prime minister’s party to assist those in arrears could harm the nation’s non-performing loan (NPL) market which was essential in aiding banks in offloading bad debt.
Giorgia Meloni’s Brothers of Italy have put out a plan that would target loans having a value of up to 25 million euros ($27 million) that banks classified as impaired between 2015 and 2018 and subsequently sold as part of a portfolio or through securitization by the end of 2022.
It attempts to provide borrowers with the option to repay the initial loan at a cost equal to the difference between the gross nominal value of the loan and the average portfolio price, plus a 20% bonus.
Giovanni Bossi, CEO of Cherry Bank, an investor in non-performing loans, told reporters that the planned program “gives borrowers an unexpected advantage that risks undermining the national NPL market, an infrastructure that I deem strategic for the country.”
In spite of the fact that the value of individual loans within a portfolio can vary greatly, a regulation like this would give the loan’s seller a 20% return on their investment.
Additionally, it would provide consumers the choice to stop making loan payments if they are aware that European Central Bank regulations require banks to dump subprime loans in order to avoid having to fully provision for them.
By using less money than would be required to pay back the debt’s initial value, the proposal would allow debtors to cancel the obligation after it has been sold.
Bossi claimed that the policy might cause foreign players in the industry to stop concentrating on the Italian market.
The banker stated that this would hurt banks since it would decrease demand for their soured loans.
“We should keep in mind that Italian banks are currently sound because the NPLs market helped the system offload approximately 350 billion euros of debts that went bad,” he continued.
