Banca Progetto Collapse: State Bears the Brunt of €6.3 Billion in Guaranteed Loans, €1.1 Billion Gone Sour
A Milan-based lender’s spectacular downfall is turning into a taxpayer nightmare, with €1.1 billion in bad debts from state-backed loans now threatening Italy’s public coffers. As Banca Progetto’s judicial administration drags on amid mafia-linked scandals, the fallout exposes cracks in Europe’s SME financing lifeline.
The Crac Unfolds: From Digital Darling to Judicial Headache
Banca Progetto, a niche Milan merchant bank specializing in state-guaranteed loans to small and medium enterprises (SMEs), plunged into crisis in late 2024. Owned by U.S. investment firm Oaktree Capital Management, the lender faced a Milan court order for judicial administration after probes revealed it disbursed over €10 million to companies tied to the ‘ndrangheta mafia syndicate.
The investigations, led by Milan’s Anti-Mafia District Directorate (DDA), uncovered violations of anti-money laundering rules. Prosecutors alleged the bank bypassed due diligence, funneling funds—backed by Mediocredito Centrale’s Central Guarantee Fund—to firms controlled by ‘ndrangheta affiliates in the Legnano-Lonate Pozzolo clan. These loans, part of emergency aid during COVID-19 and post-Ukraine invasion, now haunt the system.
By March 2025, the Bank of Italy escalated intervention, placing the bank under special administration due to mounting irregularities and CEO resignations tied to unrelated convictions. Court-appointed administrator Donato Maria Pezzuto took the helm, vowing to overhaul controls while the bank insists it’s not insolvent.
The Numbers That Sting: €6.3 Billion at Risk, €1.1 Billion Toxic
At the heart of the debacle: a €6.3 billion portfolio of publicly guaranteed loans, the bank’s core business. Out of total assets nearing €7.7 billion in performing loans as of late 2024, these state-backed credits represented about 5% of Italy’s SME guarantee market, totaling over €40 billion nationwide.
Now, €1.1 billion of that has soured into non-performing loans (NPLs), with defaults triggering state payouts via the guarantee fund. This “incubo” (nightmare) for taxpayers stems from the fund’s obligation to cover losses, potentially costing up to €1.1 billion in reimbursements. Overall SME credit with guarantees has ballooned past €60 billion since the pandemic, amplifying the stakes.
The bank’s total SME loan book stood at €6.9 billion by December 2023, underscoring its outsized role in digital lending to Italy’s backbone economy.
Mafia Ties and Regulatory Lapses: A Scandal’s Deep Roots
Banca Progetto’s troubles trace to lax oversight in a high-volume, low-scrutiny lending model. The DDA probe, coordinated by Prosecutor Paolo Storari, analyzed “bank files” showing circumvention of anti-money laundering protocols. Companies accused of fraudulent asset transfers—some via mafia methods—snagged guarantees under Laws 662/1996 and emergency decrees.
This echoes broader European NPL woes, where post-crisis bad debts hit €1 trillion, with Italy’s banks still grappling with €921 billion under ECB watch. Oaktree’s planned sale to Centerbridge in 2024 collapsed amid the probe, leaving the U.S. firm exposed.
The lender, which also offers consumer credit and factoring, protects deposits up to €100,000 via Italy’s scheme but now faces solvency risks shifting to the state.
Outrage and Warnings: Experts Sound the Alarm on Credit Crunch
Italian media erupted, with La Stampa labeling it a “sottotraccia” (under-the-radar) bomb shaking finance and politics. Governance experts fear a “credit crunch” for SMEs, as tightened controls—vital post-scandal—have frozen flows from digital and traditional banks alike.
Alberto Gustavo Franceschini Weiss, president of consultancy Ambromobiliare, warned of “dramatic consequences,” urging not to “throw the baby out with the bathwater” on guarantee schemes. Social media buzzes with SME owners decrying stalled applications, one X post venting: “Banca Progetto’s mess kills our recovery—when will the state fix this?”
Critics like Il Sole 24 Ore highlight how the bank’s 40,000-loan portfolio included just 10 flagged deals, but the damage ripples wide. Regulators praise the intervention but stress rebuilding trust through AI-driven vetting.
Echoes Across the Atlantic: Lessons for U.S. Taxpayers and Businesses
This Italian saga resonates in the U.S., where pandemic-era programs like the Paycheck Protection Program (PPP) dished out $800 billion in forgivable loans, sparking fraud probes and $200 billion in estimated losses. Like PPP’s SBA guarantees, Italy’s fund exposes public money to abuse, potentially hiking U.S. scrutiny on small-business aid amid 2025’s economic headwinds.
Economically, it warns American SMEs—mirroring Italy’s 99% small-firm economy—of lending freezes; U.S. community banks could face similar squeezes if mafia-style infiltration fears spread. Politically, it fuels bipartisan calls for robust anti-fraud tech in federal programs, echoing Trump’s tariff-era supply chain vows. For tech enthusiasts, Italy’s push for digital audits inspires U.S. fintech like Upstart, blending AI with guarantees to cut NPLs.
Lifestyle hits? Entrepreneurs delay expansions, mirroring U.S. family businesses navigating inflation—think delayed hires or shelved dreams.
A Costly Reckoning: Rebuilding Trust in Guaranteed Lending
Banca Progetto’s crac, saddling the state with €1.1 billion in deteriorated loans from a €6.3 billion guaranteed pool, lays bare vulnerabilities in SME support systems. As judicial admins tighten controls and probes deepen, Italy eyes reforms to shield taxpayers without choking credit. For Europe and beyond, this serves as a stark reminder: Innovation in lending demands ironclad safeguards, lest emergencies breed enduring scandals. With SME recovery hanging in the balance, swift action could turn this nightmare into a fortified future.
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