Italian banks’ bad loans rising
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.