MILAN, March 27 Reuters Intesa Sanpaolo has booked an impairment on its joint venture with Sweden39;s Intrum, Europe39;s biggest debt collector, in a move that highlights the challenges facing the bad loan recovery industry.

In its full year report, Intesa said it had reduced by 66 million euros 71 million the book value of its stake in the joint venture it struck with Intrum back in 2018.

At the time, Intesa merged is loan collection business with the one Intrum owned in Italy in a deal that allowed the bank to shed a nominal 10.8 billion euros in bad debts.

The resulting venture, dubbed Intrum Italy, was 51 owned by Intrum and 49 by Intesa.

The impairment decision reflects the lower than expected amounts of bank loans turning sour that the debt collection industry is reckoning with, as well as higher interest rates which reduce the current value of future cash flows, a person close to the matter said.

In terms of collections, Intrum Italy has been performing better than expected, the person added.

Caught between higher debt costs and a bad loan drought, debt collectors are revamping their business models or seeking tieups.

Italy39;s doValue last week announced it was merging with Gardant, a rival backed by Softbank Group, with doValue39;s owner Elliott funding the cash part of the deal as well as a portion of a future new share issue at the combined entity.

Intrum in January sold a significant slice of its proprietary bad loan portfolio to raise cash and has…