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    EC Prolongs Italian Guarantee Scheme for Non-Performing Loans

    June 18, 2021

    EC, has approved, under the EU State Aid rules, the fourth prolongation of the Italian guarantee scheme to facilitate the securitization of non-performing loans. The authorization is being granted until June 14, 2022. 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 non-performing loan 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.

    The scheme has assisted banks to securitize and move non-performing loans off their balance sheet and is an important component of the Italian strategy to tackle asset quality problems of banks. The scheme was initially approved in February 2016 and last prolonged in May 2019. Since its entry into force until end-September 2020, the scheme has been accessed 27 times, removing EUR 74 billion of non-performing loans from the Italian banking system, which corresponds to 53% of the total reduction of non-performing loans in Italy during that period. The 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, NPLs, State Aid Rules, Securitization, Credit Risk, EC

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