Italy studying wider guarantee package for bank loans - sources

Italy's government is readying measures to extend a guarantee scheme for bank loans aimed at stemming potential losses on credit to businesses hit by the coronavirus crisis, two sources familiar with the matter said. Italy is the country worst hit by the pandemic after China, with 35,713 confirmed cases and 2,978 deaths as of Wednesday.

A nationwide lockdown has confined Italians to their homes and shut down cafes, restaurants and almost all shops - except for grocery stores and pharmacies - and is expected to have plunged the economy into deep recession. Companies can stay open provided they comply with safety measures, but a growing number of firms, especially in the worst-stricken northern regions of Lombardy and neighbouring Emilia Romagna and Veneto, are opting to close temporarily.

Italian banks have agreed to grant a debt payment holiday to businesses in good health that run into trouble due to the crisis. Under a first 25 billion euro ($27 billion) package to support the economy, the government has committed to partly shield banks from losses on roughly a third of the loans covered by the moratorium.

The guarantee kicks in on a third of the loans once the debt holiday ends if the company is unable to resume paying. The measures applied to small- and medium-sized enterprises, which are the majority of Italian firms, but Economy Minister Roberto Gualtieri on Wednesday said the government wanted also to be able to help bigger companies.

The new measures would extend the guarantee to 90% of new loans granted by banks to businesses suffering because of the virus crisis, the sources said. The guarantee aims to keep credit flowing to the economy without forcing losses onto banks because of the additional risks they take on due to the virus, one of the sources added.

The new measure would be made possible by a loosening of European Union rules on state aid to companies under a temporary package proposed by EU antitrust chief Margrethe Vestager which member states are currently examining. ($1 = 0.9234 euros)

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