ROME: Italy is considering tightening a state guarantee scheme designed to help banks shed bad debts while weighing its extension to cushion the hit from the Ukraine war and the pandemic, according to people familiar with the matter.

       Since its 2016 launch, the Authorised Contractual Scheme (ACS) has helped Italian banks offload ？96bil (US$103bil or RM451bil) in bad debts by softening the hit from the disposals to their earnings.

       As of end-2021 investors held ？11.6bil (RM54.5bil) in GACS-backed debt, Treasury data showed in April. The scheme in its current form expires on June 14.

       Four people briefed on discussions around the scheme’s renewal said Rome was considering reintroducing it with terms adjusted to reduce risks for taxpayers, possibly seeking an extension longer than 12 months.

       One of the options being discussed is an 18-month extension.

       The extension would require approval from European Union (EU) authorities, which first cleared the measure after ensuring it complied with EU state aid rules.

       Rome is considering changes that would reduce the benefit for banks and increase protection for the state to lower the chances it will be left on the hook, the sources said.

       Even on stricter terms, the GACS scheme could help Italian lenders, which have disposed of more than ？250bil (RM1.17 trillion) in bad debts since 2015, cope with an anticipated rise in corporate defaults in the wake of the pandemic and the Ukraine crisis.

       Italy, which under the scheme guarantees the repayment of the least risky tranche of bad debts repackaged as securities, is considering hiking by at least one notch to BBB+ the required rating the “senior” tranche, the sources said. — Reuters