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Italy business lobbies urge EU to ease credit default rules

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ROME (Reuters) - Italy’s main banking and industry associations have urged European Union authorities to temporarily ease EU bank rules on loan defaults and credit provisioning to help businesses cope with the impact of the COVID-19 pandemic.

In a letter to the head of the European Commission, Ursula von der Leyen and other senior officials, the groups called for less stringent definitions to be applied to credit defaults to stop temporary liquidity problems forcing firms into bankruptcy.

In particular, they said definitions of default, combining a 90 days late payment date criterion with new rules on past due exposures and distressed restructuring could see “a huge number” of borrowers classified as in default.

“This would severely affect their access to credit, thus hampering their recovery perspectives,” said the letter, sent by banking industry lobby group ABI, the main industry association Confindustria and 14 smaller business groups.

The letter echoes concerns previously raised by Italian banks over a stricter definition of default kicking in from January, as well as on so-called calendar provisioning rules, which force banks to write down impaired loans in full over a set number of years.

Italy, which has suffered the highest number of COVID-19 deaths in Europe, is also facing a major economic shock with GDP set to drop 9% this year, according to government forecasts, putting the future of thousands of companies at risk.

The groups said calendar provisioning rules incentivised more restrictive lending practices and encouraged banks to sell loans at the first signs of financial difficulty rather than to support recovery through forbearance measures.

It said the rules, intended as a backstop to ensure common minimum loss coverage levels on non-performing loans, should be temporarily amended for at least 24 months both for secured and unsecured non-performing loans to avoid affecting credit supply.

It also proposed postponing the introduction of the stricter new credit default definition due to kick in from January and extending the 90-day threshold on late payment to 180 days before a borrower is deemed to have defaulted.

Reporting by Stefano Bernabei, editing by Barbara Lewis

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