If economic and financial conditions do not improve, some banks in stressed Eurozone countries – including Italy – will risk “considerable” losses on their exposure to the corporate sector. This is what we read in the first chapter of the Global Financial Stability Report of International Monetary Fund, published ahead of the Annual Meetings about to begin in Washington.
The IMF claims that Italian banks' gross losses could reach 125 billion euros, 53 more than prudential provisions. In Spain, on the other hand, credit institutions risk gross losses of 104 billion euros, while for Portugal the calculated figure is 20 billion. In any case, these are estimates that refer to a worse scenario than the one that the Fund itself considers more probable.
Furthermore, according to the IMF, the Italian financial sector proved to be "resilient" during the last recession, which was "prolonged and severe", but there are pitfalls: the main risks are linked to the "continued weakness of the real economy and the link between the financial sector and the situation on the sovereign front”.
If these risks materialise, says the institution, "the impact on the banks could be significant, even if limited by the capital cushions of the banks themselves and by the liquidity availability of the European Central Bank".
The report also states that "targeted actions on the Italian financial sector should be taken to raise the defenses of the banks": in particular, the most "important" contributions should come on the front of "efficiency and profitability". Some of these steps, recalls the Fund, have already been taken forward by the Bank of Italy.
Looking at the entire European Union, the IMF underlines how much major banks have continued to reduce their assets in response to regulatory and market conditions regarding their capital levels. Between the third quarter of 2011 and the second quarter of 2013, the reduction in assets totaled $2.500 trillion on a gross basis and $2.100 trillion on a net basis. The Fund specifies that deleveraging - i.e. the reduction of debt transactions - continues at the pace estimated in the base scenario of the GFSR a year ago.
Approximately 40% of the balance sheet reduction by Eurozone banks "has occurred through a reduction in loans - continues the study -, while the remainder is linked to the disappearance of non-core exposures and the sale of parts of the business” of banking groups. Meanwhile, in the Euro Area, "further steps forward have been made on the banking union front - concludes the Fund - but the outlook remains uncertain due to a failure to return to normal in the health of the banks, the credit transmission methods and the reduction of the debt burden of companies”.
