Italy is in talks with the EU to revive the GACS bad credit system.

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MILAN (Reuters) – Italy is in talks with the European Commission to revive a plan that allows the state to provide guarantees to help banks unload bad loans, two people close to the matter said.

Italy allowed the initial “GACS” state guarantee scheme to expire in June and has finalized a tougher version it plans to present to EU officials in September, sources said.

In the year Since its launch in 2016, the GACS scheme has helped Italian banks shed 117 billion euros ($116 billion) in bad debt, moving from debt relief to income.

Vincenzo Sanci d’Arpe, chief executive of Consap, the government agency that administers the scheme, told the IMN finance conference on Thursday that the Treasury was working on the issue and was confident about the renewal.

Discussions with EU competition authorities are ongoing, the sources said, without giving a timeline for approval of the latest version of the scheme.

The EU Commission, which reviews measures to ensure compliance with state aid laws, “is in contact with the Italian authorities on this matter,” a spokesman said in an emailed response to a Reuters query.

The spokesperson added: “We cannot comment on the content of the contacts or speculate on their timing or outcome.

Under the GACS scheme, banks can buy collateral from the Italian Treasury at market value to back the less risky notes when selling repackaged loans.

Since the GACS scheme was first introduced, the state has guaranteed €21.5 billion in securities whose payments are linked to the recovery of bad debts.

Tightening GACS terms will reduce risks for taxpayers Rome will restore tools to help banks cope with an expected rise in non-performing loans due to the pandemic and energy crisis. ($1 = 1.0068 EUR)

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