Coronavirus: Debt moratoria could boost Italian banks
Bankers say state guarantees to support payment holidays could prevent loan defaults.
A mask is left in a puddle in Piazza del Duomo, Florence, as Italy battles a coronavirus outbreak
The announcement of an Italy-wide suspension on debt repayments has triggered new concern about Italian banks’ revenues and capital, including whether they will need to reclassify borrowers as higher-risk.
On Tuesday, the morning after Italy announced a national quarantine, deputy economy minister Laura Castelli told local radio station that a payment holiday would apply to residential mortgage borrowers throughout the country.
On Sunday, the Italian Banking Association (ABI) had also unveiled an agreement with local trade bodies to offer debt moratoria to small and medium-sized enterprises (SMEs) affected by the coronavirus.
Industry sources say the authorities in Italy and elsewhere in Europe are wary of triggering another banking crisis and could design the payment holidays to help the banks.
Hugo Cruz, banks analyst at KBW, even compares it to the US cash-for-clunkers programme to assist carmakers after the 2008 financial crisis.
The ABI and trade bodies are also pushing for more supervisory tolerance on provisioning to go alongside the SME moratorium.