Italian Banks’ Bad-Loan Ratio Rises to Highest in 12 Years

Bad loans at Italian banks climbed to the highest level in more than 12 years as the nation’s economy endured its longest recession for two decades and sovereign-debt risks drove up funding costs for companies.

Gross non-performing loans as a proportion of total lending increased to 6.4 percent in January from 5.4 percent a year earlier, according to data published by the Italian Banking Association today. That’s the highest level since September 2000 and up from 3 percent in June 2008, said the association, known as ABI.

“Banks’ credit quality is continuing to worsen, hurt by a weak economic cycle and the worsening of companies’ financial conditions,” ABI said in the report. “Compared to the pre- crisis period, the credit quality has showed a marked deterioration, especially for small companies.”

Italian firms and families are struggling to repay their debts and find new credit lines as unemployment rises and austerity measures put in place by the caretaker government of Mario Monti curb economic activity. The Italian economy contracted 2.2 percent in 2012 and is expected to shrink 1.1 percent this year, according to the median estimate in a Bloomberg survey of 45 analysts.

Non-performing loans rose an annual 18 percent to 126.1 billion euros ($163.3 billion) in January, ABI said. Impairments, excluding writedowns, increased to 63.9 billion euros from 49.6 billion euros a year earlier, according to the report.

“We expect a further increase of bad loans until the economy starts recovering,” Gianfranco Torriero, managing director at ABI, said in the statement. “This is a physiological impact of the Italian recession, the situation is under control and lenders in the country remain solid.”

-- Editors: Mark Bentley, Dylan Griffiths

To contact the reporter on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net