02 May 2014

Bank of Italy warns of 'fragile' recovery

As reported by Reuters, Italian banks' bad loans started to decline as a proportion of overall lending in the first quarter of this year, although they are still rising in absolute terms, the Bank of Italy said on Friday. "The deterioration in banks' loan asset quality has eased," the central bank said in its twice-yearly Financial Stability Report.

"The flow of new bad debts as a ratio to outstanding loans stabilised in the fourth quarter of 2013 and preliminary data indicate that in the first quarter of 2014 it declined", the report said. "However, the volume of non-performing loans is still growing."

A gradual easing of credit contraction and the decline in net non-performing loans (NPLs) are among several signs that Italy is gradually emerging from a two-year long recession.

The Bank of Italy report said Italian banks are gradually repaying the money they borrowed from the European Central Bank during the height of the euro zone debt crisis, but at a slower rate than elsewhere in the currency bloc.

Last month 38 of the 112 Italian counterparties that had taken part in the ECB's 3-year refinancing operations had paid back 79 billion euros, or 31 percent of the original borrowing, compared with 62 percent in the other euro zone countries, the Bank of Italy said on Friday.

The Financial Times (subscription) further reported that "for smaller firms, difficulties in accessing credit, low liquidity and the uncertainties still surrounding the cyclical upswing will remain the main sources of risk in the coming months", the report added.

It also noted that the number of bankruptcy procedures reached a new peak in 2013, although there were signs of improvement in the last months of last year. Latest business surveys signalled it was possible that demand would pick up in coming months, particularly among exporters and large companies.

Bank lending to the private sector continued to decline this year but at a slower pace than in the second half of 2013, the report said. It added that banks posted a "small" increase in the ratio of bad debts to outstanding loans in the first two months of 2014.

© Reuters