For Italy, “an arrest of the fall in GDP is expected in the third quarter and a return to modest growth in the fourth. Uncertainty remains high”, but “the opinions according to which the Italian banking system today has a strong need for recapitalization are not founded”. This was underlined by the number one of the Bank of Italy, Ignazio Visco, speaking on World Savings Day.
However, the Governor remarked that “the difficult credit conditions make it necessary to resort to alternative channels to finance solid companies with good growth prospects. By offering the services necessary to accompany these companies on the capital market, banks can support their revenues and at the same time reduce risks, conflicts of interest must be avoided".
In addition, the inflows of capital from abroad could contribute to the improvement of the financing conditions of companies – continued Visco -. Foreign investments in the portfolio are recovering", also thanks to the measures adopted by the ECB: maintaining the balance of public finances and the continuation of reforms for growth "could improve the climate of confidence and reduce the perception of investment risks in Italy allowing to consolidate the recovery of the inflow of international capital”.
FOUNDATIONS-BANKS RELATIONSHIP
The governor therefore asked to avoid the transition "from the top management of the Foundations to that of the banks: significant progress must be achieved promptly" in this area, "as well as avoiding interference in the corporate structures and in the entrepreneurial decisions of the intermediaries". Moreover, some Foundations, says Visco, have not diversified their portfolios to reduce dependence on the bank's results: "They will have to adapt, taking into account market conditions".
BANK LOANS
The number one of Via Nazionale recalled that bank non-performing loans, net of value adjustments already accounted for, have reached 75 billion euros in Italy, but “they are amply covered for the whole of the system, by real and personal guarantees. The other net non-performing items (substandard, restructured and past due) with significantly lower expected loss rates than non-performing loans amount to around €110 billion”.
STABILITY LAW'
According to Visco, the reduction of the time span in which write-downs and credit losses are deductible as envisaged in the Stability law partially removes the "disadvantage" that has hitherto penalized Italian banks compared to their foreign competitors: "The new legislation, in line with the indications repeatedly provided by the International Monetary Fund, will have to encourage banks to adopt the most prudent practices of devaluation of bad loans, making their balance sheets even more transparent".
BANKING UNION
The Governor deems it necessary for the international community to speed up the process that will lead to the banking union: the single supervisory mechanism established by the ECB and the national authorities “constitutes the first element. It will be accompanied by a single bank resolution mechanism and a harmonized deposit insurance scheme, both essential to align supervisory and crisis management responsibilities, to sever the link between sovereign borrowers and banks. Work on these fronts must be accelerated”.
