Bank of Italy Sees ‘Signs of Improvement’ in Credit Market

Italy’s credit market is benefiting from the European Central Bank’s quantitative easing program, Bank of Italy Governor Ignazio Visco said.

“Italian banks’ ample recourse to the targeted longer-term refinancing operations and the start of government bond purchases by the Eurosystem have permitted a significant reduction in the cost of bank funding and led to a gradual improvement in that of credit.” Visco, who sits on the European Central Bank Governing Council, gave the keynote Tuesday at the Bank of Italy’s annual meeting.

While lending in the country has been contracting for three years, the decline has slowed in recent months and the flow of new loans has been increasing since the last few months of 2014, Visco said.

That may be a signal that unprecedented monetary stimulus from the ECB since last year is starting to help the real economy. Targeted loans, or TLTROs, formed the center of ECB President Mario Draghi’s program designed to boost lending.

Italy, the euro-region’s third-biggest economy, is starting to emerge from its longest recession on record, while the government is considering measures, including a so-called bad bank, to offload troubled assets of lenders.

“The large stock of non-performing loans also reflects the very long and variable duration of insolvency and credit recovery procedures,” Visco said.

Proposals are being prepared to remove the “unfavorable” tax treatment of loan-loss provisions by banks, he said. The measures would “eliminate these competitive disadvantages, which weaken the Italian banking system.”