ROME, Jan 18 (Reuters) - Italy should refrain from introducing measures that would undermine the success it has achieved in developing a market for impaired bank loans, the Financial Stability Board (FSB) said.
The FSB, a global risk watchdog, published a report on Thursday after studying in detail Europe's biggest market for bad bank loans.
In recent months, lawmakers from Prime Minister Giorgia Meloni's ruling coalition have alarmed investors in its 300 billion euro ($330 billion) bad loan market, by proposing measures aimed at helping borrowers struggling with debt repayments.
That legislation, if approved, would allow distressed debtors to repay their debt at a discount after their bank had sold it on.
While pointing out that the Italian authorities have achieved "significant success" in reducing non-performing loans (NPL) on bank balance sheets, the FSB said it was "critical" to avoid weakening "market mechanisms" for NPL sales.
"Proposals that would introduce uncertainty or undermine the NPL secondary market and the past success ... should be resisted," it said.
Sources familiar with the matter have previously told Reuters that the industry ministry is drafting proposals to help debtors with a more limited scope, so as to help only small businesses.
Under a draft seen by Reuters in
December
, the legislation being discussed would target only corporate loans that have not yet been sold as part of a portfolio and with a size of 250,000-500,000 euros for each financing.
The initial scheme created panic within the industry because it applied retroactively and to loans worth up to 25 million euros - a very significant amount for Italian companies, which typically have less than 10 employees.
From a peak of 360 billion euros in December 2015, gross NPLs fell to 63 billion by June 2023, with the gross NPL rate declining from 16.5% of total loans to 2.8% over the same period.
Despite progress made, the FSB underscored that the issue of long durations for insolvency procedures remained outstanding, urging Rome to adopt further reforms to simplify and streamline court procedures.
Italy should increase courts' resources and staff, especially in those courts facing the most severe backlogs, while also strengthening court specialisation in commercial matters, the report added.
Bank of Italy Governor Fabio Panetta on Wednesday said the secondary market for non performing loans was insufficiently mature and it was important to foster its development.
($1 = 0.9184 euros) (Reporting by Giuseppe Fonte; Editing by Valentina Za and Toby Chopra)
