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Italian Banks’ Bad-Loan Ratio Rises to Highest Since 2000

Bad loans at Italian banks rose to the highest level in more than 11 years as the nation’s economy endures its fourth recession since 2001 and the sovereign-debt crisis drives up funding costs for companies.

Non-performing loans as a proportion of total lending rose to 6.3 percent in February from 6.2 percent in January, according to figures released by the Italian Banking Association today. That’s the highest level since November 2000 and up from 3 percent in June 2008, said the association, known as the ABI.

“Banks are suffering from a combination of sovereign debt risk and the economic environment,” said Gianfranco Torriero, central director at the banking association. “Lenders in the country remain solid and the situation is under control.”

Italian firms and families are struggling to repay their debts and find new credit lines as unemployment rises and austerity measures implemented by Prime Minister Mario Monti contribute to an economic contraction. Concerns about the country’s sovereign debt are affecting the cost of funding and the collateral requested for loans.

Non-performing loans rose 16.5 percent in February to 107.6 billion euros ($140.8 billion) from a year earlier, the ABI said. Impairments, excluding writedowns, rose to 55 billion euros from 48 billion euros a year earlier, according to the report.

‘Mirror’ of Economy

“Data reflects the fact that Italian banks are commercial banks, which work for families and companies,” said Roberto Nicastro, general manager of UniCredit SpA, Italy’s biggest bank. “The asset quality is a mirror of the economic environment.”

UniCredit fell 4.9 percent to 3.08 euros in Milan, giving the bank a market value of 17.8 billion euros. Banco Popolare SC led declines in the FTSE MIB index, closing down 5.3 percent to 1.1 euros, and Intesa Sanpaolo SpA, Italy’s No. 2 lender, dropped 5.2 percent to 1.18 euros.

In Spain, non-performing loans as a proportion of total lending jumped to 8.16 percent in February, the highest level since 1994, from less than 1 percent in 2007, according to Bank of Spain data published today. The ratio rose from 7.91 percent in January as 3.8 billion euros of loans soured in February, a 110 percent increase from the same month a year ago. That takes the total credit in the economy that the regulator lists as “doubtful” to 143.8 billion euros.

“Italy is definitely in better shape than Spain,” ABI Generali Manager Giovanni Sabatini said in an interview. “Our country has the second-biggest manufacturing industry in Europe, greater wealth, and didn’t suffer a real-estate bubble, so the two countries cannot be compared.”

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