Weaker Italian banks that may have to sell their bad loans quickly could face additional writedowns of around 10 billion euros ($11 billion), Bank of Italy Governor Ignazio Visco said on Wednesday.
Defaulting loans held by Italian banks stood at 81 billion euros at the end of 2016, net of writedowns. Of these, only 20 billion euros were held by banks that could be forced by regulators to sell them on the market in the short term, Visco said.
“If they were sold at the very low prices offered by the few large specialist debt collection agencies active in the market today, which pursue very high returns, the amount of additional writedowns would be in the order of 10 billion euros,” he said, speaking at the Bank of Italy annual meeting in Rome.
Italian banks have been struggling under the weight of soured debts accumulated during a harsh recession, which force them to set aside capital to cover for loan losses, and are under pressure from the European Central Bank to shed them.
Rome is now negotiating with EU authorities a state bailout for three banks, Monte dei Paschi di Siena (BMPS.MI), Banca Popolare di Vicenza and Veneto Banca, with regulators demanding that they shift billions of euros of soured debts off their balance sheets.
Italy’s government in December set up a 20 billion euro fund to help weaker lenders. But negotiations are proving particularly difficult for the two Veneto-based lenders, with the EU Commission demanding an additional injection of private capital before state aid can be disbursed.
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Visco, referring to new European rules that seek to limit the amount of state aid to salvage lenders, said these cannot run the risk of undermining confidence in banks and the deposits they hold.
With multiple European authorities now dealing with bank crises, decision-making processes were “relatively incompatible with rapid intervention,” he said, adding effective coordination was lacking
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