Italy Banks’ Bad-Loan Ratio Rises to Highest Since 1999

Bad loans at Italian banks climbed to the highest in almost 14 years as the nation’s economy endured its longest recession since World War II and sovereign-debt risks drove up funding costs for companies.

Non-performing loans at face value 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 and up from 3 percent in June 2008, prior to the financial crisis, said the Rome-based association, known as ABI.

Italy’s bad-loan data came a day after the Bank of Spain said defaults as a proportion of lending at Spanish banks increased to a record 12.7 percent in September. Firms and families in peripheral countries are struggling to repay their debts as unemployment rises, forcing banks to set aside more money for soured loans.

Intesa Sanpaolo, Italy’s biggest bank by branches, last week reported a 47 percent decline in third-quarter profit after it set aside more provisions for bad debt. Spain’s Banco Santander SA said 7 percent of its mortgage loans in the country were in default in September, compared with 3.1 percent in June.

“Italy and Spain are victims of the same malaise, which is leading to a spiral of less lending and higher bad loans,” Luca Bagato, an international finance professor at Piacenza’s Cattolica University, said by phone.

Non-performing loans in Italy rose an annual 23 percent to

144.5 billion euros ($195 billion) in September, ABI said. Impairments, excluding writedowns, increased to 75.2 billion euros from 58.6 billion euros a year earlier, according to the report.

“The credit quality in Italy has worsened, especially for small companies, whose bad-loan ratio reached 13.2 percent,” Gianfranco Torriero, head of strategies and financial markets at ABI, said by phone.

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