The International Monetary Fund identified SME covered bonds and securitisation as a means of boosting SME financing in Italy, setting out this and other recommendations in a concluding statement about its latest mission to the country.

An IMF team visited Italy from 24 June to 4 July as part of an annual evaluation of the country’s economy, and last Thursday set out its preliminary findings and “priorities for reviving growth”.

IMF HQ, Washington, DC

The statement noted that the Italian authorities have taken “bold steps since the late 2011 crisis to strengthen the public finances and transform the economy”, but that much remains to be done because “growth prospects remain weak, unemployment is unacceptably high, and market sentiment is still fragile”.

The IMF identified a set of structural reforms needed to improve the business environment and recommended fiscal policy measures and steps to strengthen banks’ balance sheets and lending.

In this context, it said that a “more robust framework for financing SMEs would help ease credit constraints” and that initiatives such as the launch of mini-bonds, lending support from the Cassa Depositi e Prestiti (CDP), and expansion of the Central Guarantee Fund have eased SME credit constraints.

“At the same time, the government should monitor the expansion of public credit guarantees and strengthen the fee system to limit moral hazard,” added the IMF. “SME securitisation and covered bonds could be expanded to facilitate SMEs’ access to credit, with potential support from the ECB through a reduction in collateral haircuts.”

SME backed covered bonds have already been under consideration in Italy, with the Italian Banking Association (ABI) having last year sent a proposal for the introduction of the asset class to the Italian central bank.

The Covered Bond Report understands that the association has not pushed for feedback on the proposal, in part because it has yet to formally discuss SME covered bonds and securitisation with its members. A meeting for this purpose is due to take place at the end of July.