EU: EC okays Italian and Hungarian mechanism for bad loans

Plans by Italy and Hungary to help banks unload bad loans were approved on Wednesday by the European Commission.

Both countries want to get non-performing loans off bank balance sheets to help revive their credit markets. Commission approval was needed to avoid running afoul of European Union rules against state aid to businesses.

“The Commission concluded that neither the Hungarian nor the Italian measures involve state aid within the meaning of the EU rules,” the EU executive said in a statement.

But in each case, the Commission set conditions for transferring the bad loans. Those conditions may make the banks less eager to shift the bad debt off their books.

The Italian plan, for example, foresees a state guarantee to help banks sell their bad loans, which total about 200 billion euros worth. But the guarantee will be available only for senior tranches of securitised assets and only if they are sold at market prices to special entities, which would then try to sell off the debt.

Also, the guarantee for the senior tranche will apply only if more than half the non-guaranteed, risk-bearing junior tranche has been sold to “private market participants,” the Commission said.

Full content: Bloomberg

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