March 23, 2020 / 12:05 PM / 7 days ago

REFILE-Italy's top bank unveils new lending measures as firms battle cash crunch

(Fixes typo in fourth paragraph)

MILAN, March 23 (Reuters) - Italy’s biggest bank UniCredit has unveiled new credit measures for firms, which are facing a liquidity squeeze due to a lockdown to fight coronavirus which from Monday extends to all business activity deemed non-essential.

The government has progressively stepped up restrictions since contagion first emerged in Italy a month ago, driving a growing paralysis of economic activity.

Italy has registered more deaths than any other country in the world, with a number of confirmed cases as of Sunday second only to China at 59,138.

The shutdown has dried up cash flows for hundreds of small businesses, which form the backbone of the Italian economy and risk defaulting as payment deadlines approach.

“The economy has stopped but debt doesn’t,” Italian banker Giovanni Bossi said.

“Businesses are scared about short-term liquidity. Just think of shut-down restaurants, cinemas, shops which come the end of the month must pay rent, supplies, salaries,” he said.

Unable to foresee for how long the emergency will last as the virus spreads and other countries replicates Italy’s containment measures, companies have been maxing out on available credit lines, bank officials say.

UniCredit said it would provide small- and medium-sized enterprises (SMEs) with additional lending worth at least 10% of current financing in use, partly through debt re-negotiations and tapping a guarantee provided by the state through a fund for SMEs.

Italy’s government assumed in a draft technical document accompanying the emergency liquidity measures that SMEs in the next six months could triple amounts drawn on existing credit lines, more than they did at the height of the euro zone crisis between December 2011 and December 2012.

UniCredit said it would also grant up to six-month credit lines to other corporate clients and suspend capital repayments initially for three-to-six months on medium-to-long term commercial loans and for up to a year on home mortgages.

To encourage banks to provide a lifeline to businesses running out of cash Italy’s government is working on a guarantee covering 90% of new credit.

It has also introduced a six-month debt moratorium and pledged to cover a third of the losses banks could face once the debt holiday ends.

Banks had been lobbying for a wider guarantee on the loans subject to the moratorium because they are concerned about potential losses, a person involved in the measures told Reuters. (Reporting by Valentina Za, editing by Louise Heavens)

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