quinta-feira, 4 de agosto de 2016

Don’t lose sleep over our banks: Italy’s central bank chief


Don’t lose sleep over our banks: Italy’s central bank chief

As markets pummel Italy, Ignazio Visco insists concerns about its financial institutions and economy are ‘somewhat overstated.’

By
Silvia Sciorilli Borrelli
8/4/16, 5:30 AM CET

Despite this week’s sharp selloff of Italian bank stocks following the results of Friday’s EU-wide stress tests, Italy’s bank chief insisted that most of his country’s largest financial institutions are “robust” and able to withstand economic shocks.

In his first public comments since the European Banking Authority published its findings, Ignazio Visco told POLITICO that “overall, the results provide a fair picture of the current state of affairs of Italian banks: many institutions with robust fundamentals, and a few, well identified cases of serious but manageable weakness, which must be tackled and solved, as required by bank supervisors.”

His comments seem, in part, intended to convince investors to stop selling Italian banks shares and calm the general market anxiety about Italy.

Visco, who has been at the helm of the Italian central bank since 2011, also endorsed last Friday’s rescue plan for Monte dei Paschi di Siena bank put together by JP Morgan and agreed with the European Central Bank.

By selling its bad loans, improving its non-performing loans ratio and financing these measures via the markets, MPS should be able “to substantially improve its profitability (also thanks to a lower cost of funding) and its ability to compete and to lend to the economy,” he said in a telephone interview.

Although some financial analysts doubt investors will be willing to stump up even a fraction of the targeted €5 billion capital increase, Visco sounded confident the rescue effort will be successfully implemented. “The plan is challenging, and inevitably so, as it is designed to solve difficult issues in a testing environment,” he said.
‘Fraudulent conduct’

The governor acknowledged that MPS, the world’s oldest bank, did “poorly” in last week’s stress test, but warned against drawing conclusions about the Italian banking system as a whole.

In the absence of a clear pass or fail mark, stress test results are open to interpretation and in recent days some Italian bankers, as well as Prime Minister Matteo Renzi, have said the markets’ attention should shift from Italy to Germany, France or Spain.

“It is not possible, nor advisable, to use this year’s stress test to draw mechanistic implications for banks’ future capital requirements,” said Visco. “The exercise is addressed to individual significant banks, not to national banking systems,” he said, adding that “for instance, among the five Italian banks included in the sample, Monte dei Paschi di Siena does poorly, but Intesa Sanpaolo is one of the best performers.”

The gloom that hangs over Italy’s bank sector isn’t limited to MPS. UniCredit, Italy’s largest and only systemically important bank, also fared poorly in the EBA’s stress tests, posting the fourth worst results out of 51 EU banks. Its share price dropped 69.1 percent in the past year, according to Bloomberg data.

The economic recession has hit all Italian banks — and, Visco said, “for some of them these effects have been compounded by weaknesses stemming from their ownership and governance structures, and regrettably, in a few cases, by fraudulent conduct and supervisory authorities have repeatedly called for the implementation of restructuring plans.”

Visco, a 66-year-old economist born in Naples, is one of the longest-serving central bank chiefs in the eurozone. On the ECB’s governing council, he is considered a strong regulator who has always fiercely fought Italy’s corner.
Italy on the mend

The Bank of Italy chief stressed that worries about his country’s economy, as about its banks, are exaggerated. Slow to respond to globalization and hard-hit by the global financial crisis and the euro debt crisis, Italy “is now completing its second full year of steady and gradually broadening recovery, after the deepest and longest recession on record,” he said, attributing the turnaround to reforms that have overhauled the labor market, boosted exports and pushed the current account back into surplus.

Breaking down the problems that have kept Italy’s banks in the headlines since the beginning of the year, Visco said the total non-performing loans figure of €360 billion included just €87 billion of bad loans — meaning those that won’t be repaid — by the end of last year, of which a large chunk was backed by collateral.

Furthermore, Italian authorities are working hard to improve loan-recovery procedures and a private-equity vehicle known as Atlante was set up in April with the task of buying up part of the banks’ non-performing loans, he said.

“As I said on a number of occasions, market concerns about asset quality for Italian banks are to be taken seriously and should not be casually dismissed,” he added. “But there are good reasons to believe that they are somewhat overstated.”

Solving the banks’ problems “will take some time, but the process has clearly started,” said Visco.

“A significant improvement in the business environment is very much needed,” said the central bank chief. “This said, however, there is no doubt that most Italian banks are capable of dealing with the still fragile cyclical conditions, lending to the economy and competing efficiently on the market.”

“It will take time to achieve the objectives; a firming up of the economic recovery with a positive spill-over on banking activity will prove to be decisive,” said Visco.

Authors:

Silvia Sciorilli Borrelli

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