Italy PM Meloni’s party irks bad loan investors with new proposal

ROME (Reuters) – Italian Prime Minister Giorgia Meloni’s party has filed a new proposal to protect borrowers if they fall behind in repaying their bank debt, another move that investors said stoked risks for the country’s 307 billion euro ($328 billion) bad loan market.

Italian lawmakers upset bad loan investors last month by proposing to give borrowers the right to repay their original loan at the discounted price at which the creditor bank sold it on, plus a 20% premium. To dispel concerns, Meloni said on Sept. 7 that there were no measures “on the launch pad” for non-performing loans.

However, lawmakers from Meloni’s Brothers of Italy party have now put forward to parliament another rule that would make it easier to apply their initial proposal.

Under the latest measure, it would be obligatory in banks’ sales of bad loans to include in contracts the price of individual loans, even if they are sold in bulk.

The proposal would mean investors could only act in court to recover soured loans from borrowers if the contracts comply with the strict new requirements.

In a bulk sale of credits, the relevant price for the market is that of the overall portfolio, which is an average of the single loans’ prices.

Investors keep a record of individual loan prices, but often such prices are calculated through statistical methods, while only a sample of loans gets priced more precisely.

The file with the prices is not included in the contracts at present, but kept only by investors, for whom the only price that really matters is the portfolio’s average.

Portfolios can comprise thousands of loans, which would make it too onerous to price each loan properly.

Three bad loan investors said the market did not expect the latest measure to go through but it would create problems if it did.

Attempts to change the rules of the game with retroactive effect are perceived as damaging, the people said requesting anonymity given the sensitivity of the issue.

The rule sets a three-month limit to amend transactions that have already taken place but investors said it was impossible to retroactively price single loans in a meaningful way.

The proposal, which would be introduced by amending a decree that in August introduced a surprise one-off tax on bank profits, is expected to be discussed by the upper house Senate this week.

($1 = 0.9361 euros)

(Editing by Keith Weir)