Italy to ask EU for up to two years extension of its ‘Hercules’ for NPLs

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Italy plans to launch a round of negotiations with the European Commission to extend the guarantee mechanism to help banks with non-performing loans (NPLs) by up to 24 months, according to sources familiar with the matter. the Reuters agency.

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The “GACS” government guarantee scheme, as it stands today, expires in mid-June, depriving the financial sector of an effective tool to tackle the NPLs as the country prepares to face a new wave of debt service pandemics.

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Rome wants to agree with the European Union for at least a year, according to the same sources.

Since its introduction in 2016, the program has made it easier for Italian banks to reduce the weight of NPLs on their balance sheets by 96 billion euros.

The country’s banks are expected to “get rid” of NPLs worth another 30 billion euros by drawing resources from state guarantees, if the program is renewed, according to industry forecasts.

Under the mechanism, banks can buy Italian government guarantees at a purchase price to support bonds in which the same financial institutions “package” non-performing loans. The mechanism reduces the risk for buyers and thus facilitates the achievement of better prices in the sale of these securities.

Making the situation more complicated, Eurostat is examining whether these government guarantees should be counted in the public debt, which would mean an additional burden of 11-12 billion euros on the already burdened debt of 2.68 trillion. euro of Italy.

Eurostat ‘s decision will also affect Hellaswhich uses a similar mechanism, “Hercules”.

Source: Capital

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