MNI: Italy Net Bad Loans E65.3Bln in Aug, Lending Grows: ABI

By Silvia Marchetti

     ROME (MNI) - Italy's volume of net bad loans sitting on lenders' balance

sheets further dropped in August, falling to to E65.3 billion from E65.8 billion

a month earlier, the Association of Italian Bankers said Tuesday.

     The fall confirmed the downward trend of recent months, with NPLs at the

lowest level in the last two years, as banks are boosting their financial

solidity.

     August net bad loans are significantly below the E86.8 billion peak seen in

December, and by roughly E23 billion lower that the November 2015 peak when they

hit a record E89 billion, the ABI in its October outlook report.

     The ratio of net bad loans as a proportion of total lending stood at 3.83%

in August. 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 14.9% in August, down from 19.43% a year earlier, the

ABI said.

     Progress has been made in addressing excessive bad loans and bank

recapitalisation needs. According to Rome's Treasury, NPLs were reduced by over

25% in the last few months.

     Italy's government last year passed a law aimed at tackling the issue with

a plan aimed at supporting lenders remove risky loans by speeding up disposal

procedures.

     Bank of Italy governor Ignazio Visco recently acknowledged that lenders had

made significant efforts in clearing their balance sheets, but called for the

creation at European level of a NPLs market.

     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, which Italy has so far lacked, in order to reduce the

total burden of E350 billion still weighing on banks' balance sheets and

hampering credit revival.

     The plan, which was approved by the European Commission after a long

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 most likely to be recovered according to bank ratings. The price of the

guarantee would be set at market conditions, 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 the lending pick-up to both

firms and families with an annual increase of 1.4% in September. The lowest peak

in the country's prolonged credit crunch, triggered by the triple-dip recession,

was in 2012 when it fell 4.5%.

     In September, according to latest updated data by ABI, mortgage loans grew

annual 2.6%, demonstrating that family consumption rates and purchasing power

were finally recovering as Rome's government recently raised to 1.5% GDP growth

for this year.

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

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