Italy’s central bank, which started examining the assets of 20 of the nation’s lenders last year, will take a closer look at the books of eight of them as a worsening economy drives up bad loans.
For these eight banks, which weren’t identified, “the checks were extended to the entire loan portfolio, in some cases turning the inspection into a full-scope examination of the entire operational activity of the group,” the Rome-based central bank said in a statement late yesterday.
Italy’s banks are struggling to improve credit quality as the longest recession in more than 20 years makes it harder for firms and households to repay their debts. The Bank of Italy is urging banks to boost capital by selling non-strategic assets and curbing operating costs, dividends and executives’ and directors’ compensation. In the fourth quarter of last year, the regulator required banks to set aside additional provisions after coverage ratios declined compared to previous years.
“The eight banks on which the BOI is carrying out a more detailed analysis are likely to be small- to medium-sized institutions,” analysts at Intermonte Sim wrote in a note to clients today. “Examination of performing loan portfolios may lead to some additional provisions, but not necessarily for the same amounts seen in the fourth quarter.”
The banks had set aside provisions amounting to 43.5 percent of their non-performing loans at the end of December, compared with 31 percent at the end of September, the central bank said.
“The Bank of Italy will closely follow the implementation of additional corrective measures that the banking groups inspected were invited to adopt,” it said in the statement.
UniCredit SpA, Italy’s biggest bank, rose 1 percent to 4.05 euros at 2:15 p.m. in Milan trading, giving it a market value of 23.5 billion euros ($31.2 billion). Intesa Sanpaolo SpA, the No. 2 lender in the country, gained 1.4 percent to 1.41 euros.
The monitoring of banks’ asset quality and provisioning levels is continuing, the central bank said, adding that its action will be coordinated with similar exercises carried out on an international level. The European Central Bank will take over supervision of the euro region’s banking system next year and will conduct an asset quality review of the biggest banks.
“We are not surprised by the further wave of inspections on the loan portfolio of Italian banks following the announced review by the ECB,” Anna Maria Benassi, an analyst at Kepler Cheuvreux in Milan, wrote in a report today. “We reiterate our cautious view on Italian banks.”
The Basel Committee on Banking Supervision, which sets global capital standards, will require lenders to have common equity equal to at least 7 percent of risk-weighted assets by 2019. Under Basel proposals designed to reduce leverage, banks would have to hold equity equal to 3 percent of total assets by 2018.