January 18, 2018 / 8:00 AM / a year ago

Italian banks urge EU to relax rules on salary-secured loans

ROME, Jan 18 (Reuters) - Italy’s banking industry is lobbying European lawmakers to change what it sees as unfairly harsh regulation of a common lending practice in the country, a campaign that if successful would ease pressure on lenders to raise more capital.

So-called “salary-secured” loans, popular in Italy but rare elsewhere in the European Union, are made to workers on permanent employment contracts or to pensioners, with repayments automatically debited from salaries or pensions.

Industry sources estimate the proposed change to regulations introduced in 2014 would cut the combined amount of capital Italian lenders need to set aside by almost 1 billion euros ($1.2 billion).

The Italian Banking Association’s (ABI) effort is part of a drive to relieve pressure on lenders to raise additional funds at a time when they are still emerging from an industry crisis.

“The salary-secured loan could became a benchmark in Europe to support household funding, if this amendment is approved”, ABI managing director Giovanni Sabatini told Reuters.

Italian banks complain the European Union’s Capital Requirements Regulations (CRR) force them to set aside an unnecessarily large amount of capital against a class of low-risk consumer loans worth 16.5 billion euros ($19.5 billion).

CRR rules treat them as regular consumer credit, requiring banks to set aside the same amount of capital as they do for other forms of personal debt, such as a car loan.

The ABI wants European lawmakers to change the rules so that banks can halve the current 1.6 billion euros of capital needed to back salary-secured loans.

“This change is not going to have a significant impact on the bigger Italian listed lenders but it would be a positive news for a niche business”, said Annamaria Benassi, banking analyst at Kepler Cheuvreux.


An update of the rules should come into force this year at the end of a legislative procedure involving the three main EU political bodies: Parliament, Commission and Council.

Peter Simon, a German MEP in charge of the legislative procedure for the rules in Strasbourg, has already endorsed Italy’s proposal.

“This amendment should take into account the low risk of these exposures which have a considerably lower default probability,” said Simon in a report to the EU Parliament published in November.

Under CRR rules, salary-secured loans currently carry a risk weighting of 75 percent - the higher the weighting, the more capital required. The ABI wants the weighting cut to 35 percent.

According to industry sources, this would enable Italian lenders to free up at least 850 million euros of capital.

On the top of this, the lenders would gain further savings from January 2019 when the Minimum Requirement for own funds and Eligible Liabilities (MREL) will comes into force to increase the loss-absorbing capacity of EU banks.

In Italy, about 1.2 million borrowers have salary-secured loans that are limited to a fifth of salary or pension, insured and repayable over 10 years in installments.

Some banks are discouraged from writing them because of the relatively high capital cost.

“A bank must control at least 5 percent of this market for lending to be profitable,” said Franco Masera, president of Rome-based IBL Bank.

Half of Italian salary-secured loans are controlled by a handful of banks. IBL has written 17 percent of them, followed by BNL, a unit of BNP Paribas, as well as UniCredit , Compass, a unit of Mediobanca, and Banca Sistema.

“Around a 20 percent of our assets are salary and pension backed loans. With this amendment we would halve the capital needed to back them,” said Gianluca Garbi, Banca Sistema’s CEO.

$1 = 0.8146 euros Reporting by Stefano Bernabei; Editing by Mark Potter

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