Economy

Italy studying state guarantee for banks’ debt moratoriums

imageEconomy11 hours ago (Mar 09, 2020 03:31PM ET)

By Stefano Bernabei

ROME (Reuters) – The Rome government is considering a state guarantee scheme to support banks offering debt moratoriums to firms and households grappling with the economic fallout from Italy’s coronavirus outbreak, one of the world’s worst.

Deputy Economy Minister Antonio Misiani said in an interview with Radio24 on Monday that the government was discussing the measure with Italy’s central bank.

Such a move would address requests by Italian banks, which fear a new surge in problem loans just as they are emerging from a long restructuring to tackle the legacy of previous downturns.

Italy’s banking lobby, ABI, has called for a state guarantee and a 6-12 month reprieve from new, stricter European Union rules on problem loans.

ABI said on Monday lenders representing 90% of total banking assets had so far embraced the moratorium, offering small firms hurt by the outbreak the choice to freeze repayments or lengthen the maturity of loans granted up until Jan. 31.

Banks, however, can ill afford to see their capital buffers eroded by loan loss charges if the moratoriums lead to loans being classed as impaired under the new rules.

ABI Director General Giovanni Sabatini has told Reuters the state guarantee could limit the amount of capital banks need to set aside against such loans.

A Bank of Italy official confirmed the close collaboration with the Treasury to help businesses hit by the virus crisis, which is expected to have tipped Italy into a new recession.

Debt moratoriums to ease pressure on companies and a state guarantee to support banks in turn are the focus of action and could be included in a new set of measures the government is working on, the official said.

Italy’s cabinet is expected on Wednesday to approve a 7.5 billion euro ($8.6 billion) package to help to offset the hit from the crisis.

At the weekend, the government imposed a virtual lockdown on the northern region of Lombardy and parts of neighboring Veneto, Piedmont and Emilia-Romagna to try to slow the spread of the virus.

Economic activity in those areas is being further disrupted through travel bans, a shutdown of cinemas, theaters and museums, and restrictions to restaurants’ opening hours.

Misiani said the government might also consider a moratorium on companies’ payments of tax and welfare contributions.

Rome has already said it will pay self-employed workers in the areas worst hit by the virus 500 euros a month for the next three months to help make up for lost income.

Government sources have said the government is considering extending the measure beyond the locked-down “red zone”, and perhaps to all of Italy. ($1 = 0.8761 euros)

(Additional reporting and writing by Valentina Za; Editing by Kevin Liffey, William Maclean)

Italy studying state guarantee for banks’ debt moratoriums

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