MNI INTERVIEW-2: Italy Fin Firms Must Further De-risk: Rossi

--But Italy NPL Fire-Sales Must Be Weighed: BOI Dep Gov Rossi

--Banks Need To Grasp Fintech Opportunity, Evolve Business Model

     ROME (MNI) - Italy's financial sector must boost its risk reduction by

further curbing the volume of non-performing loans on lenders' balance sheets

while undergoing a pro-efficiency overhaul, Bank of Italy Deputy Governor

Salvatore Rossi told MNI in an interview.

     "The Italian banking sector has markedly strengthened in recent years. The

NPL ratio, although still substantial, is falling sharply. Net of write-downs it

was 7.5% at end 2017, from 10.9% at end 2015", said Rossi.

     But more needs to be done to consolidate the financial system, without

giving in to excessive haste in disposing of NPLs that risks turning out to be

counterproductive.

     "Further de-risking must be attained, bearing in mind that generalized

fire-sales of NPLs have pro-cyclical effects," Rossi said.

     A key obstacle to NPL reductions is the length of Italy's credit recovery

procedures, which still average 7 years from start to finish. "The reforms to

the judicial procedures implemented in 2015 and 2016 have gone in the right

direction but are still not enough," Rossi argued.

     Looking at the bigger picture, what Italy really needs to tackle future

banking challenges is a complete modernization and restyling of its financial

sector, which is still dominated by high costs and very low profitability

levels, despite recent improvements.

     --FINTECH BOOST

     Financial technology adoption stands as the big leap forward. "To achieve

efficiency gains and diversify income sources, banks need to adjust their

business model, making investments in information technologies and human

capital, which in turn may require some further consolidation to attain the

optimal size," argued Rossi.

     This is why Italian banks, still tied to traditional methods, must fully

grasp the opportunity offered by the ongoing Fintech revolution. But to do so

they must develop adequate instruments and strategies.

     "New technologies are rapidly expanding into all segments of the financial

industry, drastically changing the way financial services are produced and

distributed," Rossi said. 

     "This digital revolution is posing a severe challenge to traditional

banking to which banks can respond by heavily increasing their investments in

technology and adapting their organization accordingly," he added.

     According to Rossi, technology will be key to reducing costs, improving

efficiency, diversifying sources of income and, eventually, restoring

profitability.

     "This way, banks may turn fintech from an important challenge to their

business model into an extraordinary opportunity," he said.

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

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