OREANDA-NEWS. The scheme to securitise some of the Italian banking sector's EUR200bn non-performing loans (NPL) is unlikely to make a material difference to balance sheets until recovery times are shortened, says Fitch Ratings.

We estimate recoveries could drag on for an average of seven years in Italy, peaking at 12 or 13 years in some of the southern regions, which are among the longest in the EU. New insolvency and bank provisioning tax laws have not yet significantly boosted NPL disposals or speeded up the recovery process.

The new scheme provides an alternative to outright NPL sales. But the mechanism looks complicated and costly and implementation times appear long. Some Fitch-rated banks said the scheme looks too onerous and this is likely to reduce their willingness to participate.

In our opinion, take-up under the scheme is uncertain and the government's EUR70bn target is ambitious. Attaching a government guarantee to securitized senior tranches, which historically performed well, will do little to entice investors to buy mezzanine and junior tranches.