Italy launches US$5.7b fund to tackle bad debts

April 12, 2016 | 10:48

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Italy announced the creation of a €5-billion (US$5.7 billion) fund on Monday to take on bad loans and guarantee that weakened banks can be recapitalised, financial news agency Radiocor reported.

Shares in Italian banks had closed higher in Milan in anticipation of the decision, with Banco Popolare soaring 10.3 per cent. (AFP/Paco Serinelli)

ROME: Italy announced the creation of a €5-billion (US$5.7 billion) fund on Monday to take on bad loans and guarantee that weakened banks can be recapitalised, financial news agency Radiocor reported.

Italian banks are currently saddled with some €200 billion (US$228 billion) worth of non-performing loans, Radiocor said, citing the Bank of Italy.

One of the new fund's first actions will be to intervene in the recapitalisation of the Banca Popolare di Vicenza to the tune of €1.75 billion (US$2.0 billion) from next week, ahead of a similar intervention in the Veneto Banca in June, the agency said.

The decision came after a meeting Monday between finance ministry officials and representatives of major banks and financial institutions.

Shares in Italian banks had closed higher in Milan in anticipation of the decision, with Banco Popolare soaring 10.3 per cent and Banca Monte dei Paschi di Siena jumping 9.8 per cent as the market rose 1.25 per cent.

Even larger banks like Intesa Sanpaolo and Unicredit climbed higher, gaining 3.1 per cent and 5.1 per cent, as the reported plans would ease their burden in guaranteeing the operations in buying shares in smaller banks.

The gains came in marked contrast to the repeated heavy losses suffered by banking stocks since the start of the year.

The European Union and Italy reached an agreement in January on creating a guarantee vehicle to help Italian banks sell bad loans, after the two sides spent more than a year trying to thrash out a solution that did not contravene EU rules on state aid.

Under the plan, the guarantees will be established at market prices and will therefore not be regarded as state aid.

AFP

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