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--Italy Net Bad Loans Lowest level since Summer 2015 
By Silvia Marchetti
     ROME (MNI) - Italy's Banking Association said Tuesday that the volume of
net bad loans sitting on lenders' balance sheets dropped to E65.8 billion in
July, falling from E71.2 billion a month earlier and confirming the downward
trend of recent months. It is the lowest level recorded in the last two years,
as banks continue to solidify their financial position.  
     July net bad loans are down sharply on the E86.8 billion cycle peak
recorded in December, and by roughly E23 billion on November 2015, when they hit
a record E89 billion, the ABI said in its September outlook report.
     The ratio of net bad loans as a proportion of total lending stood at 3.82%
in July. At the end of 2016 the ratio was 4.89%, the highest since 2015. Before
the outbreak of the crisis in 2007, the ratio stood at 0.86%.
     The ratio of net bad loans as a proportion of total bank assets (capital
and reserves) dropped to 15.35% in July from 19.12% a year earlier, the ABI
said.
     Progress has been made in addressing excessive bad loans and bank
recapitalisation needs. Italy's government last year passed a law aimed at
tackling the emergency through a plan aimed at supporting lenders dispose of
risky loans by speeding up disposal procedures, which today are an average of 8
years, according to the Bank of Italy. 
     Ignazio Visco, Governor of the Bank of Italy, recently acknowledged that
lenders had made significant efforts in clearing their balance sheets but called
for the creation of a NPL market at the European level.  
     Italian authorities recently supported three ailing banks through public
support amounting to roughly E10 billion, following the green light from the
European Commission.  
     Market operators and public authorities are jointly working to create a
specific market for NPLs, so far lacking in Italy, in order to further reduce
the E300 billion burden still weighing on banks' balance sheets, thus hampering
a credit revival. 
     The plan, approved by the European Commission only after a lengthy
stalemate in negotiations with Italy, envisages the sale of state guarantees to
market operators willing to purchase bad loans from ailing banks. 
     The public guarantee however would be valid only for "senior class" loans
that are those most likely to be recovered according to bank ratings. The price
of the guarantee would be set by the market, thus ruling out the risk of any
kind of public aid in favour of lenders which had initially forced the EC to
voice concern and reject a previous draft plan presented by the government. 
     The ABI report confirmed a "consolidation" in lending revival to both firms
and families with a 1.1% annual increase in August. The trough in the country's
prolonged credit crunch, triggered by the triple-dip recession, was in 2012 when
lending fell 4.5%.
     In July, according to latest updated data by ABI, mortgage loans grew an
annual 2.5%, demonstrating that family consumption rates and purchasing power
were finally recovering as the economy picks up.  
     Italy's government is expected to lift growth predictions by end of this
month, with suggestions the growth outlook will be upgraded to 1.4 or 1.5% from
the previous 1.1% set in April. 
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
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MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com