Italian borrowers will pay a fraction of the face value of the loan
The Italian government will have until the end of the year to finalize a borrower-friendly framework for bad loans as part of Prime Minister Giorgia Meloni's bid to help families and businesses hit by rising interest rates. In particular, her government is seeking to finalize a new framework that will allow individuals and small businesses to repay debts that were difficult to service in previous years for a fraction of their face value, according to the Bloomberg news agency. However, the draft law is likely to cause more turmoil in Italy's banking sector, but also among foreign investors after the very recent and surprise announcement of a one-off tax on profits, which caused large losses in the stock market value of credit institutions in the first place. Investor concerns relate to the possibility that the measures could jeopardize Italy's non-performing loan market. “Our goal is to free as many people and businesses as possible from their bad loans, as well as to settle past debts,” as Industry Minister Antonio Urso had clarified, speaking to Bloomberg News.
The proposal was initially formulated at the end of last year by MPs close to the prime minister and received the support of the minister. Meanwhile, members of the neighboring country's opposition tabled a separate bill on the issue. It is worth mentioning that, although the Italian Parliament is going to start debating the measures in September, the government could decide to speed up the passage of the bill. Just as a few days earlier the law was passed on the one-time tax of 40% on bank excess profits thanks to interest rates, so at the time of outstanding loans, the MPs of Meloni seek to limit speculation. Those who invest in non-performing loans, quite often international groups that is, had bought these debts in dramatic conditions and are now “profiting from the double weakness of both banks and borrowers, exploiting as sharks exorbitant profit margins, something truly unacceptable”. according to the draft of the new law. In particular, investors usually buy the bad loans in packages through securitizations and quite often, securing government guarantees, at a fraction of their face value. Unsecured loans, such as those from credit cards, change hands for less than 10% of their face value, while mortgages on real estate and other debt backed by assets sell for higher prices.
End , it is reported that the planned legislation will enable borrowers with debts of less than 25 million euros, which were not serviced between 2015-2021, to buy them back from the investment houses, which took them from the banks before December 31, 2022. Borrowers will pay a 20% surcharge on the purchase price.
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