In 2016 the top ten Italian banks, from Intesa Sanpaolo to Unicredit, including Mps and Carige, recorded EUR 29.4 billion of problem loans, but it is the new ECB rules on bad loans that are more frightening than these figures, because they will lead to a drastic fall in profits.
The forecast comes from analysts at Equita Sim, as reported by La Stampa.
“The range goes from the EUR 10.5 billion of Unicredit, which has total loans of EUR 444.6 billion, to the EUR 1.1 billion of Carige or the EUR 706 million of Creval, which however have significantly lower customer loans of EUR 18.2 and 17.4 billion respectively. Taken together, the top ten banks hold EUR 228 billion of problem loans out of the EUR 249 billion total on the balance sheets of Italian banks. (…) Applying to the 2016 figures the new rules on problem loans proposed by the ECB, the cost of risk for these banks would increase by EUR 3.5 billion. And it is this number that frightens bankers most and, in turn, regulators, governments and businesses.”
Seventy-eight per cent of the new bad loans are secured, but it is the unsecured component that gives rise to the greatest concern, since it must be written off within two years and consists mainly of households (consumer credit) and small businesses.
“But it is also true that statistically about a third return to performing status. Until now banks had an incentive to keep the customer and stabilise the exposure.” With the ECB’s proposal, “the incentive to recover the exposure falls away, in favour of selling the loan to specialised funds, whose interest is to recover their money quickly at the expense of the customer”.
The need to increase provisions, albeit gradually, will weigh more heavily on the weaker institutions. For Unicredit and Intesa Sanpaolo, the soundest institutions, the fall in profit will be limited to between 8% and 9%.
“For Banco BPM the impact on expected profit will reach 21%, 26% for Bper and up to 47% for Banca Carige, for which the market in any event already estimates a net loss of EUR 50 million.”
Dark clouds, therefore, on the horizon for the Italian banking system, which is already in a precarious state and on which the world’s largest hedge fund, Bridgewater Associates, has bet EUR 700 million on future falls.
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