Italian banks may have to set aside an additional 44 billion euros ($59 billion) in provisions for bad loans, analysts at Societe Generale SA said.
Doubtful loans have increased at a faster pace than expected, Carlo Tommaselli, an analyst at Societe Generale, wrote in a report today. To bring its provisioning to a sustainable level would require a 40 percent markdown of the bad-loan portfolio, leading to a capital shortfall of 19 billion euros, he estimated.
“This extremely harsh scenario could be manageable as the banks may enjoy additional buffers to reduce the capital shortfall and could also use some collateral to further reduce the bill,” Tommaselli said in the note.
Italian firms and families are struggling to repay their debts as unemployment rises, forcing banks to set aside more money for soured loans. Gross non-performing loans as a proportion of lending increased to 7.5 percent in September from 5.9 percent a year earlier, according to data published by the Italian Banking Association today. That’s the highest since November 1999.