All in all, these measures can, in time, lead to a significant reduction in the risk-weighted assets of Italian banks and make way for new loans capable of largely offsetting the lending reduction of recent years. But relieving banks’ balance sheets of the large stock of nonperforming loans will require action on a series of fronts, since the reasons for their existence are multiple.
The value appreciation of non-performing loans brought about by the reform will spur the creation of a secondary market for these assets, but may not be enough to ensure this market is sufficiently large. This is the proper framework in which to view the planned creation of an asset management company specializing in the purchase of non-performing loans.