Italy PM Renzi wins confidence vote on bank loan recovery decree

ROME (Reuters) - Italian Prime Minister Matteo Renzi won a confidence vote on Tuesday over a decree to speed up the recovery of unpaid debt, clearing the last parliamentary hurdle for legislation aimed at helping the country’s stricken financial system.

Italian Prime Minister Matteo Renzi arrives at the EU Summit in Brussels, Belgium, June 28, 2016. REUTERS/ Francois Lenoir

Italy’s banking system, the euro zone’s fourth biggest, has been plagued for years by low profitability, weak governance and high costs. Bank shares have fallen 56 percent this year and came firmly into investors’ crosshairs after Britain’s vote to quit the European Union last week. [.FTIT8300]

Renzi’s decree aims to cut the time it will take Italy’s banks to shift 360 billion euros ($399 billion) of bad loans that built up on their balance sheets during a three-year recession.

Calling a confidence vote obliges the government to resign if it loses, but Renzi has resorted to this tactic numerous times to speed up the passage of laws. It carries little risk for him thanks to his healthy majority in the lower house.

Deputies will cast a final vote on the decree later on Tuesday or on Wednesday, as a parliamentary formality.

Renzi said in April the debt recovery decree should cut the time it takes to recoup credits from six to eight years to six to eight months. It applies only to banks’ loan agreements with companies, not those with individuals like mortgage holders.

It provides for both parties to agree when a loan contract is signed that they will bypass the court system and allow the creditor to repossess collateral if the borrower defaults.

Creditors will also be able to seize other assets aside from the property pledged as security for loans, and companies will be able to use equipment and real estate that is already in foreclosure to help them stay in business.

The decree also plans reimbursements for some retail bondholders who lost money when the government rescued four small banks last year, unleashing popular rage against Renzi.

The government has also passed a guarantee scheme to let banks offload bad loans by bundling them into securities they can then sell. It coaxed healthier banks into setting up an emergency fund called “Atlante” to buy bad debt and subscribe to capital hikes at struggling lenders.

($1 = 0.9019 euros)

Reporting by Isla Binnie; Editing by Gareth Jones