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Italian non-performing loans cross 150-bn-euro mark

Credit crunch raising interest in concept of 'bad bank'

10 February, 19:47
Italian non-performing loans cross 150-bn-euro mark (By Sandra Cordon) (ANSA) - Rome, February 10 - Italy's central bank announced Monday that non-performing loans exceeded 150 billion euros in December 2013 - a whopping increase of almost 25% over the same period one year earlier.

In the latest snapshot of the country's struggling economy, the Bank of Italy's latest available statistics showed that loans from commercial banks to Italian businesses and individuals that were not being repaid amounted to a total of 155.8 billion euros.

That was a significant increase from November's total of 149.6 billion euros in non-performing loans, the central bank said, and was contributing to a credit crunch where banks have been tightening up considerably on the amount of loans they are willing to make.

The latest figures also dramatically underscore the depth of the financial problems in the Italian economy as non-performing loans were also 22.7% higher in November compared to 12 months earlier, the central bank said.

Meanwhile, in terms of industrial production, the picture was similarly bleak as output in 2013 fell by 3% compared to 2012, the Italian statistics agency Istat reported. In December alone, industrial production contracted by 0.7% compared to the same time 12 months earlier.

In November, the figure rose by 1.5% over the same month in 2012, boosting results for the fourth quarter and fueling hopes that after two years of painfully deep recession, an economic recovery in Italy was beginning to take hold.

But the evidence is very tentative and experts such as the International Monetary Fund have forecast economic growth this year of only about 0.6%, rising to about 1.1% in 2015 as Italy struggles to see credit flowing again to businesses so they can begin to hire and consumers can feel more confident spending. However, commercial banks have not been lending as they struggle with their own debts and concerns about maintaining their balance sheets.

As a result, many have argued that Italian banks should set up a so-called "bad bank", or a financial institution that holds non-performing assets owned by a state-guaranteed bank in order to avoid a credit crunch. Ignazio Visco, the head of the Bank of Italy, argued in favor of creating a bad bank in a speech to Italy's top bankers over the weekend, noting that lending to Italian companies, especially smaller firms, had fallen by 9% in the past two years.

He said the central bank was also concerned that Italy's recovery remained "weak" and "uncertain".

Such a tightening in credit can make it extremely difficult for businesses to try to survive the deepest recession in Italy since the period following the Second World War - let alone try to expand.

Premier Enrico Letta on Monday denied a report from the Financial Times that the Italian government had rejected the idea of setting up a so-called "bad bank". "The premier has never said he was opposed," said a statement from his office. Citing an unnamed government official, the UK financial daily reported Sunday that Italy was afraid such a bank would put the country's credit rating at risk by focusing market attention on the exposure of its banks to a rising level of non-performing loans.

Letta's denials were buttressed when Italy's economy ministry said Monday that it favours the idea of a bad bank, so long as it is confined to private-sector moves to shed non-performing loans and did not anticipate any public money becoming involved.

In a statement, the ministry said that such actions, taken by banks to clean up their balance sheets to help mitigate a credit crunch, could be helpful. Banks have been struggling to shore up their capital levels before important stress tests and asset quality reviews by the European Central Bank later in the year.

But that has not been easy.

For example Unicredit, Italy's biggest bank, recently reported that its profits in the first nine months of 2013 plunged by 28.5% to one billion euros while third-quarter profits fell by 39.1% to 204 million euros.