Italian Economy Minister Pier Carlo Padoan confirmed yesterday that today’s Cabinet meeting will examine new bankruptcy rules as part of a broader effort to speed up the time it takes for banks to recoup their non performing loans, in a move the government hopes will underpin the banking sector and support economic recovery.
Italy's €210 billion gross non performing loan mountain is also weighing banking stock prices, which earlier this month forced the government to broker an agreement with Italy’s largest banks to subscribe a “backstop” fund called Atlante to underwrite the capital increases its weaker banks need to comply with EU rules.
The IMF said in mid-April that it was “urgent” to tackle the problem of non-performing loans and excess capacity, mentioning specifically “Greece, Italy and to a lesser extent Portugal.”
The ratio of non-performing loans to total loans at Italian banks are 11.2%, a record among developed economies, said the report.
The slow pace of Italy’s legal system means that asset recovery can take as much as seven years, which has depressed market prices for non performing loans.
The most important of the new measures that should be reviewed by the cabinet today will be a norm allowing borrowers to pledge non-real estate assets or even stakes in their company as collateral for loans.
For example, collateral could be in the form of non-real estate assets on a company's balance sheet, excluding certain items like cars or ships. In the event of a loan default, a creditor would be able to start selling the goods or assets at prices that would satisfy the credit extended, or to appropriate the goods and put them up for competitive bidding to reach the sums owed.
The issue of whether company equity can be pledged as a loan guarantee becomes a crucial point in a country where small- and medium-sized unlisted family held groups make up the bulk of the economy where company finance is dominated by banks.
The cabinet will also discuss options for easing anti-usury restrictions, with judicial oversight, to encourage a flow of financing to companies in difficulty. The final part of the decree would focus on several urgent measures dealing with civil procedures and judicial organization.
Measures to reimburse retail investors who lost month in December’s “bail in” of four small banks are likely to be approved today.
The measures to be discussed tomorrow include revisions to the Bankruptcy Law, including a provision that gives a handful of corporate governance organs the right to request a declaration of bankruptcy and ask for administrative intervention — including the use of consensual settlements — to held alleviate a struggling company's most pressing financial issues.
In the event of losses “of a not modest size for more than one earnings cycle, or when a company is heading towards a state of financial crisis,” the internal audit committee, statutory auditor, accounting firm, oversight committee or even management committee are called upon to demand management takes direct action to remedy the state of crisis and, if necessary, to adopt adequate measures for a settlement with creditors.
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