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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