Italian banks are safer than expected: Accento
(6 October 2015 – Italy) Following the European Central Bank’s (ECB) macro-prudential analysis on the security parameters of 123 European financial institutions, including 13 in Italy, the firm found that only four were considered ‘high risk’.
Based on three parameters (governance, capital and liquidity), the Italian banks classified as “class 4” included Banca Carige, Monte dei Paschi di Siena (MPS), Banca Popolare di Vicenza and Veneto Banca.
The report finds that all four lenders are severely affected by high levels of non-performing loans (NPLs) compared to net capital. According to the report, NPLs are estimated to amount to €320 billion (A$507 billion), (consisting of €200 billion ‘official’ NLPs and around €120 billion worth of unofficial -yet realistic- NPLs).
In a bid to reduce their exposure, Banca Garige and MPS have sought to increase capital through raising rounds over the last few months while Banca Popolare di Vicenza and Veneto Banca will publicly list in the coming year. From the IPOs, the lenders are expected to raise €1.5 billion and €800 million respectively.
Accento says the establishment of a ‘bad bank’ is “key to the long-term security for investors” in the country’s financial institutions. A bad bank, supported by private and public capital, will absorb most, if not all NPLs. It is highly likely to be approved by the EU and Italian Ministry of Economy despite some opposition from Europe, including European Commissioner for Competition Margrethe Vestager.
Vestager’s opposition follows the unsuccessful arrival of a number of global hedge funds into the Italian market, where banks preferred to keep bad loans on their books to avoid a 5 to 7 percent devaluation of their nominal value. In addition, a partial or total transfer of NPLs may not result in higher rates of credit lending to enterprises considering Italian banks are operating in a market with interest rates close to zero.
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