Business World

Tuesday 20 August 2019

Italian lenders still exposed to risk factors - central bank


Italian prime minister Giuseppe Conte. Photo: Reuters
Italian prime minister Giuseppe Conte. Photo: Reuters

Lorenzo Totaro and Sonia Sirletti

Italian banks remain exposed to risks including slower economic growth and higher government bond yields, the nation's central bank said.

"Weaker growth and greater uncertainty are adversely affecting earnings' expectations and are making it more difficult to access the capital market" for the lenders, the Bank of Italy said in its semi-annual Financial Stability Report.

"Banks remain vulnerable to negative developments on the Italian government bond market," the report added.

The euro region's third-biggest economy, which is led by prime minister Giuseppe Conte, emerged earlier this year from a two-quarter recession it slipped into in the second half of last year. However, output is set to rise the least among all the currency bloc's nations.

An index for Italian bank stocks bounced 20pc this year, after a 30pc plunge in 2018 when bond yields soared to multi-year highs.

"The slowdown in production halts the growth in high-quality loans and, if protracted, the reduction of non-performing loans," after the disposals made in the last few years, the Rome-based Bank of Italy said.

The economic slowdown limits the possibility of increasing interest income and, should it persist, may cause credit-risk costs to rise again, the central bank said.

New increases in market volatility may lower subscriptions to asset management products and reduce fees, according to the report.

It also found that the Italian banking system keeps strengthening. In the second half, capital ratios returned to growth, NPLs continue to decline and bond sales have resumed.

At the end of 2018, the stock of gross NPLs stood at €189bn, or 27pc less than at the end of 2017.

The central bank expects that the ratio of net NPLs to total loans will fall to 3.9pc by end of 2019 and to 3.1pc in 2021 from 4.3pc at end of 2018.


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