MNI EXCLUSIVE: Italy Banks, Biz Concerned Over New NPL Rules

--"Overlapping" ECB, EC Regulation May Trigger Confusion

By Silvia Marchetti

     LONDON (MNI) - New Europe-wide rules on bank bad loans could put any

pick-up in credit provision at stake and undermine economic growth, worrying

both Italy's top banks and trade unions, MNI understands.

     The overlapping regulation, published last week by the European Central

Bank and separately by the European Commission in its bad loans proposal, risks

generating confusion in financial markets by leading to a proliferation of

authorities dealing with non-performing loans, said a source close to The

Association of Italian Banks,  Italy's banking lobby.

     "Even though the ECB rules are not compulsory, and are more a set of

guidelines for banks to follow in the future, in fact they are mandatory," the

source said.

     We will end up having a system where there are virtuous lenders that do

apply the addendum, and 'naughty' ones that do not and we all know that both

markets and regulators are sensible to these distinctions," the source added. 

     --INVESTOR DISCRIMINATION

     This two-tier system will lead investors to discriminate between the good

and bad banks, as will authorities when it comes downs to analysing and judging

balance sheets. 

     "There will be a high expectations that all banks, no matter their size and

systemic role, apply the ECB and the EC rules, even if the latter are yet a mere

proposal that needs to undergo approval in Brussels,", the ABI source said.

     The ABI has yet to give a final evaluation of the new regulations although

one is, expected Wednesday after its executive council meeting. The main concern

is that the ECB's rules might not align with the EC, thus generating regulatory

uncertainty, while pushing lenders to put aside greater capital provisions.

     "We need to analyse the concrete effect these rules will have on credit

flows and banks' capital, hoping lending to the real economy will not be

penalized", argued the source, adding that ever since the banking union was

first launched in 2013, Europe is still facing an "experimental transition"

period which is being tough on member states' lenders.

     "Europe's new banking outlook still has to be properly defined, nothing is

definite yet today there already are too many rules, which often clash, and too

many organisms that deal with banking and financial issues," the source said. 

     Above all we need to avoid that these new NPLs rules end up penalizing

banks which core business is lending to families and firms," the source

continued. 

     The ABI source argued that any potential ECB-EC regulatory overlapping

could undermine mutual trust between banks and investors, and that new rules at

the European level often did not take into account the differences and

peculiarities of each member state's financial systems.

     --GOOD COMPROMISE

     But according to Cosimo Calabrese, executive adviser at Finanza & Futuro,

the advisory arm of Deutsche Bank Italia, the ECB's addendum is a good

compromise, "much softer than the initial scheme, which applies only to new bad

loans issued from April onwards and considers each bank separately from the

system".

     Calabrese also downplayed the regulatory overlapping. "Legislation in this

field is now the competence of the ECB's single supervisory authority and we

must abide to its rules," he said.

     Leading industrial lobby Confindustria shares the banking sector's

concerns, and is waiting for ABI's feedback on the impact of the new regulation

on credit to make any move.

     "It's crucial to evaluate what the effect (of the new rules) will be on the

financial needs of Italy's small and medium enterprises that make up 98% of the

country's productive system and are the most penalized in accessing credit,"

noted Paolo Bastianello, head of Confindustria's 'Made In' committee set-up to

defend Italian products.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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