“The solution to the disrupted company situations and the economic recovery are dissipating the risks on the stability of the Italian system. The markets' judgment on the prospects of Italian banks has improved in recent months, reflected in a robust recovery in share prices”. This was stated by the governor of the Bank of Italy, Ignazio Visco, speaking on Wednesday morning at the meeting of the Italian Banking Association (ABI).
"But much remains to be done - added the number one of Via Nazionale - to achieve a configuration of the sector in which banks are able to generate profits adequate to support the levels of capitalization required by the rules to protect the stability of individual intermediaries and the system as a whole".
VISCO: BAD BANK PUBLISHES PROFIT, BUT PURCHASES NPL AT REAL VALUES
As for the hypothesis of a public bad bank, “we are convinced that the introduction of a measure of this type would be potentially useful – underlined the Governor – provided it is quickly defined. For it to be truly successful, the transfer price of the assets should not be too far from their real economic value. Participation in the scheme by intermediaries should take place on a voluntary basis and the characteristics of the restructuring plans of the participating banks should be established ex ante”.
MPS, VISCO: RECAPITALIZATION MUST BE COMPLETED BY THE BEGINNING OF AUGUST
On the MPS front, the Governor believes that the recapitalization process "must be completed by the beginning of August with the issue of the implementing ministerial decrees". The Treasury, in the event of a full recovery of the subordinated retail bondholders, will allocate resources for 5,4 billion, acquiring a stake of around 70% in the Sienese bank: "Once the bank has returned to adequate income levels, the State will sell the own stake, enhancing the investment now made”.
BANK RESCUE, VISCO: "A EUROPEAN COORDINATION IS LACK"
“The management of banking crises is today entrusted to a multiplicity of independent authorities and institutions; there is a lack of an effective coordination action that defines the priorities and guides the use of the margins of discretion that the legislation recognizes. The difficulties that emerged in identifying a solution to the crisis of the Veneto banks also bear witness to this. It is also necessary to establish precise ways in which to account for the decisions taken".
BANKS, VISCO: CUT WAGES. NULL CAPITAL RETURN IN 5 YEARS
Visco then recalled that “since 2008 the number of bank employees has fallen by 12%. It is a process destined to continue, even with the use of well-calibrated measures accompanying the early termination of the employment relationship. In this transition, the reduction of costs must also concern overall remuneration, at all levels, and reduce the still widespread redundancies on an organizational level".
In terms of profitability, "in Italy the decline in banking sector profits was particularly pronounced: the return on capital, around 10% in the middle of the last decade, was, net of exceptional factors, almost zero in the last five years ”.
VISCO: THE RECOVERY IS STRENGTHENING, BUT FORWARD WITH THE REFORMS
As regards the general framework of the Italian economy, according to Visco “it has strengthened and the most recent economic indicators confirm the acceleration of production activity. The latest surveys of households and businesses signal overall a consolidation of confidence at high levels and the restart of investments. The outlook for exports and employment remains favourable. The higher growth has a positive effect on credit trends, even if the demand for loans from businesses remains weak, reflecting the wide availability of own funds and the difficulties of some sectors”.
However, “in Italy economic development is still held back by the rigidities and inefficiencies of the context in which businesses operate – continued the governor – as well as by the weak dynamics of productivity. The reform process must continue, which requires commitment on the part of everyone, foresight and interventions aimed at mitigating the costs of the transition. To erase the legacy of the most serious and deepest economic crisis in the history of our country, the consequences of which are visible in the peaks reached by unemployment, the ratio of public debt to GDP and that of non-performing loans to total bank loans, we need more than an economic recovery”.
PATUELLI: TRAUMAS AND EXCESSIVE COSTS FROM BANKING UNION
The president of ABI, Antonio Patuelli, underlined during the meeting that the rules introduced by the banking union in Europe have brought “trauma and excessive costs. After the privatization of public banks in Italy, banking crises have been dealt with for years under the guidance of the Bank of Italy, without inflicting trauma on savers and competing banks. Instead, the rules of the nascent banking union have brought trauma and excessive costs. We need to critically review the experiences of these almost three years of nascent banking union in order to structurally correct the European decision-making processes that are not always understandable, the inadmissible and unconstitutional retroactivity, the extreme choices, the forcings such as the devaluations imposed on the four banks subject to resolution, as if should have liquidated (i.e. sold off) their NPLs immediately”.
Patuelli then remarked that regulatory simplifications and transparency are now needed, because “in 2016, for the banking, financial and insurance sector alone, 1.247 regulatory sources were issued which affect the entire manufacturing world. About five for each working day."
BANKS, PATUELLI: COMBINATIONS PREVENT FUTURE CRISES
According to the number one of the ABI, the banking combinations "could serve to prevent other possible crises and Italy will see at the beginning of 2018 a very low number overall and compared to the European averages of 115 banking groups and independent single banks, in addition to branches of foreign banks. However, we must be careful not to exaggerate and not to compress the essential competition in local markets, where 95% of companies have fewer than ten employees”. Also on the front of the branches Patuelli noted how in 2016 they decreased by the record figure of 1.231: "And they are decreasing further and rapidly".
