Make Kitco Your Homepage

Italian banks may face 9 bln euros in loan losses in 2021-2022-BoI

Kitco News

MILAN, April 30 (Reuters) - Italian banks could face around 9 billion euros ($11 billion) in loan losses this year and next as the economic damage wrought by the pandemic becomes apparent, the Bank of Italy said on Friday.

While the portion of corporate loans turning sour is still very low at 1.5% of the total, the Bank of Italy flagged the threat posed by the growing share of loans which are still performing but are classed as ‘Stage 2’ under international accounting standards.

Stage 2 loans, which require lenders to set aside more provisions, grew by 11% at Italian banks in the second half of 2020 to account for 10.7% of overall performing loans.

That proportion is higher for loans under moratorium, where Stage 2 loans are 29% of the total.

Urged by regulators to prepare for the possibility borrowers may be unable to resume payments when debt holiday ends, Italian banks have classed as Stage 2 almost a third of loans under moratorium.

Loans for which payments have been frozen in Italy totalled 147 billion euros at the end of 2020, accounting for 9.1% of total loans at larger banks. That is much higher than a euro zone average of 2.6%.

The higher proportion of loans under moratorium - often held by sectors worst hit by the pandemic - means large Italian banks have more loans classed as Stage 2 than euro zone peers.

Italian lenders increased loan loss provisions by a third last year, further hitting profitability. The average return on equity for the industry dropped to 1.9% in December 2020 from 5.0% a year earlier net of one-offs.

Encouraged by tax incentives, Italian banks cut impaired loans on their balance sheets by a quarter in the second half of 2020, to 103.6 billion euros, or 4.4% of total lending from 6.1% at the end of June.

That is below a benchmark 5% threshold set by European authorities and less than a third of the peak hit in the wake of the global financial crisis of 2008-2009 and the euro zone debt crisis.

Disposals of problem bank loans totalled 33 billion euros last year, the Bank of Italy said.

$1 = 0.8279 euros Reporting by Valentina Za and Andrea Mandala. Editing by Mark Potter

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.