Ital­ian banks’ bad loans ris­ing

The Pak Banker - - COMPANIES/BOSS -

UniCredit and In­tesa San­paolo, Italy’s big­gest banks, may strug­gle to boost profit as po­lit­i­cal grid­lock threat­ens to in­crease bor­row­ing costs, worsen an eco­nomic con­trac­tion and drive up bad loans.

The Ital­ian bench­mark 10year bond yield climbed as much as 0.44 per­cent­age point and an in­dex of the coun­try’s fi­nan­cial shares dropped as much as 11 per­cent af­ter last week’s gen­eral elec­tion left Italy’s largest po­lit­i­cal par­ties grop­ing to form a government amid a four-way par­lia­men­tary split. The dis­ar­ray may im­pede eco­nomic growth as the long­est re­ces­sion in 20 years and tougher rules from reg­u­la­tors, in­clud­ing the Bank of Italy, are al­ready forc­ing banks to set aside more money against doubt­ful loans, said Ja­copo Cec­ca­telli, a part­ner at JC & As­so­ciati SIM, a Mi­lan­based fi­nan­cial ad­vi­sory firm. Banco Popo­lare SC, Italy’s No. 4 bank by as­sets, said it will report a big­ger loss for 2012 than an­a­lysts es­ti­mated be­cause of higher losses at its con­sumer credit unit.

“Given the wors­en­ing of the eco­nomic en­vi­ron­ment and the pres­sure from the Bank of Italy to raise bad-loan cov­er­age, I ex­pect Ital­ian banks’ prof­itabil­ity and cap­i­tal gen­er­a­tion to con­tinue to de­te­rio- rate,” Cec­ca­telli said. “The po­lit­i­cal un­cer­tainty may add fur­ther pres­sure on banks as the in­creas­ing spreads af­fect the lenders’ fund­ing costs and the value of their sovereign­debt hold­ings.”

UniCredit may post a fourth-quar­ter net loss of 173 mil­lion eu­ros ($227 mil­lion) when the Mi­lan-based bank pub­lishes re­sults on March 15, ac­cord­ing to the av­er­age of a sur­vey by the bank, af­ter a profit of 114 mil­lion eu­ros in the year- ear­lier pe­riod. Loan­loss pro­vi­sions are seen ris­ing 48 per­cent to 2.2 bil­lion eu­ros, the sur­vey found.

In­tesa, also based in Mi­lan, will prob­a­bly report a quar­terly loss of 70.3 mil­lion eu­ros on March 12, ac­cord­ing to a sur­vey of seven an­a­lysts. The lender posted a 10.1 bil­lion- euro loss in the fi­nal three months of 2011, af­ter writ­ing down good­will on ac­qui­si­tions. Of­fi­cials at UniCredit and In­tesa de­clined to com­ment.

The Ital­ian econ­omy con­tracted 2.2 per­cent in 2012 and is ex­pected to shrink 1 per­cent this year, the Bank of Italy es­ti­mates. Ital­ian firms and fam­i­lies are strug­gling to re­pay debts and find new credit as un­em­ploy­ment rises and aus­ter­ity mea­sures put in place by the care­taker government of Mario Monti curb eco­nomic ac­tiv­ity.

The job­less rate reached the high­est in more than 13 years in De­cem­ber and con­sumer con­fi­dence fell in Jan­uary to the low­est level since at least 1996. Ital­ian cor­po­rate and house­hold non-per­form­ing loans rose to a record in De­cem­ber, reach­ing 125 bil­lion eu­ros, ac­cord­ing to data from the Ital­ian Bank­ing As­so­ci­a­tion. Banks’ gross non­per­form­ing loans as a pro­por­tion of to­tal lend­ing in­creased to 6.3 per­cent from 5.4 per­cent a year ear­lier.

France’s BNP Paribas (BNP), which owns a re­tail bank and con­sumer credit unit in Italy, and Credit Agri­cole re­ported higher bad-loan pro­vi­sions from their Ital­ian branch net­works in the fourth quar­ter. Italy’s cen­tral bank has in­creased in­spec­tions and is urg­ing banks to take more pro­vi­sions. “In pe­ri­ods of mar­ket ten­sion, the in­ten­sity of su­per­vi­sion can­not be re­laxed,” Gov­er­nor Ig­nazio Visco said in a speech on Feb. 9.

“The Bank of Italy re­view of the top 25 banks likely means an in­crease in non-per­form­ing loans cov­er­age” in the fourth quar­ter, Francesca Tondi, an an­a­lyst at Mor­gan Stan­ley, wrote in a report March 6. “We think 2013 ac­counts will also be af­fected by still- grow­ing NPLs and the need for more cov­er­age.” UniCredit shares as much as dou­bled in Mi­lan trad­ing.

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