MILAN: The Italian economy has strengthened and credit quality is improving, Bank of Italy governor Ignazio Visco said on Wednesday. But to erase the legacy of the crisis, “more than an economic recovery” is needed. It is necessary to conclude the “process of reforms with the commitment of everyone,” he said, adding that Italian banks, for example, must “recover an adequate level of profitability.”
Addressing a meeting of Italian banking association ABI, the Bank of Italy governor spoke also of the go-ahead agreed by European finance ministers for the action plan to resolve the question of bad loans : a plan that also involves the launch of a bad bank at the national level.
“We are convinced that the introduction of a measure of this type will be potentially useful, as long as it is rapidly defined,” he said.
“But “so that it can effectively have success, the price to transfer the assets should not be too distant from their real economic value; the participation in the scheme on the part of intermediaries should come about on a voluntary basis and the characteristics of the restructuring plans of the participating banks will have to be established ahead of time.”
Visco underlined that the flow of new deteriorated credit “has shrunk to levels that were prevalent before the crisis,” or to 2.4% of financing.
And the overall size has also declined. At the end of March, for the biggest banks the share of overall deteriorated credit on the total of loans fell to 9.2% (from 11.4% at the end of 2015). According to Visco, selling and securitization operations currently underway will determine a further notable decline in the size of net deteriorated exposure: “in the next 12 months, their share could fall below 8%.”
Visco went over the latest interventions: the precautionary recapitalization of Monte dei Paschi, which will be carried out by the first days of August and will lead to the State having control of 70% of the capital, with an overall commitment of €5.4 billion; and the administrative liquidation of the two Veneto banks, carried out “in conformity with European norms and according to the principles of the single banking text,”. The solution for the Veneto lenders involved the intervention of Intesa Sanpaolo to assure the continuity of critical functions of the banks, and the State, with an outlay of €4.8 billion, which will be recovered through the sale of the deteriorated credit through a bad bank.