BRUSSELS, Jan 26 - European Union state aid regulators approved on Tuesday an Italian proposal to set up a guarantee scheme to support Italian banks in dealing with their non-performing loans.
“The guarantees are to be priced at market terms, so do not constitute state aid,” the European Union’s Competition Commissioner Margrethe Vestager said in a statement after a meeting with Italy’s Finance Minister Pier Carlo Padoan.
According to Italian estimates, the country’s banks may have a much as 200 billion euros in bad loans. They have made provisions for only slightly more than half of these loans.
Vestager said that together with reforms undertaken and planned by Rome, the guarantee scheme should “improve the banks’ ability to lend to the real economy and drive economic growth.”
Under the plan Italian banks will securitise and move the non-performing loans, currently on their balance sheets, to separate, individually managed entities.
They will benefit from a Italian government guarantee on the senior tranches of the securitised assets held by such entities. These state guarantees are to be provided and priced at market terms so as not to constitute state aid.
“The Commission, with the help of a monitoring trustee... will monitor the implementation of the scheme to ensure it is state aid free,” the Commission said in a statement. (Reporting by Jan Strupczewski and Foo Yun Chee)