August 31, 2018

EC has approved, under the EU State aid rules, prolongation of the Italian guarantee scheme to facilitate the securitization of non-performing loans (NPLs). This authorization has been granted until March 07, 2019. The scheme was initially approved in February 2016 and last prolonged in September 2017.

Under the scheme, Italian banks meeting certain conditions will continue to be able to request a State guarantee on the lower-risk senior notes issued by private securitization vehicles that help them to finance the sale of their NPL portfolios. The more risky funding tranches of the securitization vehicles are to be sold to private investors and will not be guaranteed by the State. By assisting banks to securitize and move NPLs off their balance sheet, the scheme is an important component of Italy's strategy to tackle banks' asset quality problems and has already made a significant contribution.

Since its entry into force until June 2018, the scheme has been accessed six times by five banks, removing EUR 33 billion (gross book value) of NPLs from the Italian banking system, which corresponds to over 60% of the total reduction of NPLs in Italy during that period. EC assessment showed that, under the scheme as notified by Italy, the State guarantees on the senior notes will continue to be remunerated at market terms according to the risk taken—that is, in a manner acceptable for a private operator under market conditions. On this basis, EC was able to maintain its conclusion that the measure is free of State aid within the meaning of EU State aid rules.

 

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Keywords: Europe, EU, Italy, Banking, NPLs, Guarantee Scheme, EU State Aid, EC