Fitch ratings: New regulations on non-performing loans in Italy will create uncertainty.

Rating agency Moody's analyst Adele Sindoni has stated that the Italian government's proposed new rules on bad loans will bring "significant uncertainty" to the country's bad loan market. Sindoni's report states, "This measure may increase the operating burden for servicing entities, trigger substantial modifications to existing business plans for servicing entities and buyers, and affect the profitability of existing investments in bad loans." According to insiders, the Italian government, led by Meloni, is seeking to finalize a new framework that would allow individual and small business borrowers to repay a small fraction of their troubled bad loans at face value. Specifically, the proposed new measure would allow Italian borrowers with debts below 25 million between 2015 and 2021 to buy back these debts from funds that purchased them, with borrowers paying a 20% premium on the transaction price (usually a small fraction of the loan's face value). Analysts say that this measure will have a new impact on Italy's bad loan market. Over the past eight years, international funds have spent billions of euros buying up bad loans held by Italian banks, allowing the banks to exit these positions and stimulate new lending activity. Gregorio Consoli, a Financial Management Partner at Chiomenti law firm in Milan, stated that the proposed new measure may limit banks' ability to sell bad loans and further impact their ability to provide new loans. Sindoni notes that the proposed new measure means that debt recovery agencies will have to renegotiate contracts with bad loan investors and creditors because the debt recovery rate will inevitably decline. Analysts point out that in the long term, bad loan buyers may reconsider their investment strategies, as the "predictability of resolution strategies may be damaged." She added that the proposed new measure will also harm banks, as handling bad loans on their books will become more expensive or difficult, and the bad loan market has been a key avenue for Italian financial institutions to clean up their balance sheets in recent years. In addition, analysts argue that the proposed new measure may also impact the government's guarantee provided to help banks get rid of their 110 billion debt. Under the so-called GACS plan, banks can package bad loans into securities for sale, while the government buys the riskiest portion to increase their attractiveness to investors. Gregorio Consoli pointed out, "The new measure will inevitably put pressure on the GACS plan, although its impact is difficult to quantify."