Why new NPL proposal is wrong

Several rumors have been circulating in recent weeks regarding a bill to reform the NPL market formulated by some members of the governing majority. By pursuing the goal of favoring consumers and punishing investors, the government may be harming itself.

What do we know about the proposal?

Details of the proposal are not public, however, from the rumors circulating it should consist in a form of relief for insolvent debtors.

Basically, in the case of non-performing loans sold in a given time frame, the debtor would have the opportunity to free himself from his debt by paying an amount parameterized to the sale consideration of the relevant loan, plus a mark-up of between 20 percent and 40 percent.

Why should Italian Goverment introduce such a change?

Because it believes this reform would help fragile citizens and balance the unfair gains made by shark investors in the past. It is based on the idea that large amount of bank credits have been sold at very low prices and private investors are making substantial profits while poor debtors are forced to pay back amounts of money way larger than what they would have given to the banks without the interventions of these investors.

What’s wrong with Government approach?

1. It fails to understand how NPL market (expecially pricing) and credit management industry works
2. It wrongly believes this would help a significant number of fragile citizens
3. It wrongly believes this would impact only greedy investors and fails to understand the negative consequences for the entire system
4. It doesn’t consider the potential burden for taxpayer linked to state owned entities that acquired or managed NPLs (AMCO, MPS) and GACS deals,

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