Italy Banks Extend Slump Amid Rising Credit Quality Concerns

  • Paschi, UniCredit among banks pressed for loan data by ECB
  • Country's bad loans reached 201 billion euros in November

Italian banks led by Banca Monte dei Paschi di Siena SpA extended their losing streak to four days on concerns about the lenders’ credit quality as the European Central Bank toughens scrutiny of bad loans.

Monte dei Paschi, bailed out twice since 2009, slumped 14.4 percent to a fresh record low in Milan trading, bringing losses this year to 44 percent. Banco Popolare SC fell 6.3 percent, while Banca Popolare dell’Emilia Romagna SC declined 0.4 percent. Europe’s 46-member Stoxx 600 Banks Index increased 0.6 percent after dropping the past three trading sessions.

“The signs of a global economic slowdown, the delay in creating a so-called bad bank in Italy and the ECB’s review of bad loans have triggered selling of Italian lenders that are viewed as holding poor quality credit,” said Stefano Girola, who helps manage about 40 billion euros ($43 billion) at Syz Asset Management in Lugano, Switzerland. “Investors see risk that some banks may have to raise more capital to meet regulators’ requests.”

UniCredit SpA and Banca Popolare dell’Emilia Romagna were among Italian lenders asked to submit data on their non-performing loans.

Coming Review

The review by the central bank’s oversight arm, the Single Supervisory Mechanism, will be carried out in the coming weeks, the companies said in separate statements late Monday. Banco Popolare SC, Banca Popolare di Milano Scarl and Banca Carige SpA are also involved in the assessment.

“We doubt that the ECB, after having spent the last 18 months collecting data for the asset quality review, the stress test and the regular supervision activity, would still lack information on each bank’s asset quality position,” Andrea Filtri and Riccardo Rovere, analysts at Mediobanca SpA, wrote in a note Tuesday. More regulatory uncertainty “could backfire on the banking system’s stability,” they wrote.

The Single Supervisory Mechanism is seeking more information about the non-performing loans to tackle bad-debt across the region. A task force is reviewing the situation of institutions with high levels of NPLs and will propose follow-up action, it said.

Italy’s government sought to reassure investors after bank shares slumped. The ECB hasn’t signaled “specific concern about Italian banks, but it is just a study to identify the best practices for the management of non-performing loans,” Italy’s Finance Minister Pier Carlo Padoan said in a statement on Tuesday.

Intesa Sanpaolo SpA, UBI, Banca Popolare di Sondrio Scarl and Mediobanca were among lenders that said Monday they hadn’t received any communication from the ECB regarding a further analysis of their non-performing loans.

In Italy, banks’ bad loans reached a high of 201 billion euros in November, with record-low interest rates and a struggling economy squeezing profit margins.

The Bank of Italy said on Tuesday that credit conditions on loans to businesses and households continued to ease in the fourth-quarter. Loans to private sector remained little changed at 1.56 trillion euros in December, after an increase in the previous month, the Italian Banking Association said in a separate report.

The government has been seeking to win approval for a bad bank to help speed up disposals of soured loans. Tensions between Italy and the European Commission mounted last week after European Commission President Jean-Claude Juncker publicly questioned Prime Minister Matteo Renzi’s criticism that the process lacks flexibility.

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