MNI: Italy Net Bad Loans Seen At E66 Billion in Oct - ABI

By Silvia Marchetti

     ROME (MNI) - Total bad loans sitting on  Italian lenders' balance sheets

rose to E66 billion in October, up from E65.7 billion a month earlier, Italy's

Banking Association said Friday. 

     However, the total is still among the lowest levels seen in the past two

years, as banks continue to boost their financial solidity.  

     October net bad loans have dropped significantly from the E86.8 billion

peak in December 2016, and by roughly E23 billion since November 2015 when they

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

     The ratio of net bad loans as a proportion of total lending stood at 3.79%

in October. 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) was at 15.07% in October, down from 19.25% a year earlier, the ABI

said.

     Despite the slight monthly fluctuations, the general downward trend in NPLs

seems to be consolidating, as lenders are cleaning their balance sheets.

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 decree aimed at tackling the problem

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

disposal procedures. 

     Bank of Italy's governor Ignazio Visco recently acknowledged that lenders

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

creation of a European level NPL market. 

     Market operators and public authorities are jointly working to create a

specific market for NPLs, lacking in Italy, in order to reduce the total burden

of E300 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 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 pick-up in lending to both

firms and households, with a 1.3% annual increase in November. The low in the

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

2012 when it fell by 4.5%.

     In October, according to latest ABI data, mortgage loans grew an annual

3.4%, demonstrating that family consumption rates and purchasing power were

finally recovering as the economy picks up.  

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

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