Italian banks call on EU to relax rules on wage-guaranteed loans

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ROME, Jan.18 (Reuters) – Italy’s banking industry is pressuring EU lawmakers to change what it sees as unfairly harsh regulation of a common lending practice in the country, a campaign which, if successful, would alleviate pressure on lenders to raise more capital.

The so-called “payday” loans, popular in Italy but rare elsewhere in the European Union, are granted to workers on permanent contracts or to retirees, with repayments taken automatically from wages or pensions.

Industry sources estimate that the proposed change to regulations introduced in 2014 would reduce the combined amount of capital that Italian lenders have to set aside by nearly one billion euros ($ 1.2 billion).

The effort of the Italian Banking Association (ABI) is part of a desire to ease the pressure on lenders to raise additional funds at a time when they are still emerging from an industrial crisis.

“The loan guaranteed by wages could become a benchmark in Europe to support household financing, if this amendment is approved,” ABI chief executive Giovanni Sabatini told Reuters.

Italian banks complain that the European Union’s capital requirements (CRR) regulations force them to set aside unnecessarily large capital against a category of low-risk consumer loans worth 16, 5 billion euros (19.5 billion dollars).

CRR rules treat them like regular consumer loans, requiring banks to set aside the same amount of capital as they do for other forms of personal debt, like a car loan.

The ABI wants EU lawmakers to change the rules so that banks can halve the current € 1.6 billion capital needed to support wage-backed loans.

“This change will not have a significant impact on Italy’s largest listed lenders, but it would be good news for a niche business,” said Annamaria Benassi, banking analyst at Kepler Cheuvreux.

LOW RISK

An update to the rules is expected to enter into force this year following a legislative process involving the three main political bodies of the EU: Parliament, Commission and Council.

Peter Simon, a German MEP in charge of the legislative rules procedure in Strasbourg, has already endorsed Italy’s proposal.

“This amendment should take into account the low risk of these exposures which have a considerably lower probability of default,” Simon said in a report to the European Parliament published in November.

Under CRR rules, salary-backed loans currently have a risk weight of 75% – the higher the weight, the greater the capital required. The ABI wants the weighting to be reduced to 35%.

According to industry sources, this would allow Italian lenders to free up at least € 850 million in capital.

On top of that, lenders would realize additional savings from January 2019, when the minimum capital requirement and qualifying liabilities (MREL) comes into effect to increase the loss absorbing capacity of EU banks. .

In Italy, around 1.2 million borrowers have loans guaranteed by wages, limited to one fifth of the salary or pension, insured and repayable over 10 years in installments.

Some banks are discouraged from writing them due to the relatively high cost of capital.

“A bank needs to control at least 5% of this market for loans to be profitable,” said Franco Masera, president of Rome-based IBL bank.

Half of the loans guaranteed by Italian wages are controlled by a handful of banks. IBL subscribed 17%, followed by BNL, a unit of BNP Paribas, as well as UniCredit, Compass, a unit of Mediobanca, and Banca Sistema.

“About 20% of our assets are loans backed by wages and pensions. With this amendment, we would halve the capital needed to support them, ”said Gianluca Garbi, CEO of Banca Sistema.

$ 1 = 0.8146 euros Report by Stefano Bernabei; Editing by Mark Potter


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