Italy July Net Bad Loans Drop to E65.8 Bln, Lending Grows: ABI

--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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