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Market Report, "Italy Commercial Banking Report Q3 2012", Published

New Financial Services market report from Business Monitor International: "Italy Commercial Banking Report Q3 2012"


Boston, MA -- (SBWIRE) -- 09/17/2012 -- BMI View: Emergency liquidity measures provided by the ECB and the Bank of Italy have staved off the threat of an immediate liquidity crisis, providing the banking sector with a window to restructure, although large purchases of government debt have increased the sector's exposure to the eurozone crisis. We expect credit growth to contract by 1.5% in 2012 as the Italian economy sinks into recession and banks seek to boost their capital buffers. Furthermore, the banking sector's increased government debt holdings increase its exposure to the eurozone crisis. We expect credit to contract by 1.5% in 2012 and grow by just 0.1% in 2013 as the economy sinks into recession and banks seek to increase their capital buffers. We forecast Italian GDP to shrink by 1.4% in 2012 as Prime Minister Mario Monti implements austerity measures and a wider eurozone recession weigh on exports and investment. Non-performing loans (NPL) have already increased from 5.8% of total assets in January 2011 to 6.9% in January 2012, a trend we expect to continue for the rest of the year. This will weigh on credit growth as banks boost their capital buffers to digest rising NPLs. Banks will also be eager to build up capital to improve their risk profile. Although most major Italian banks have met Basel II's minimum capital requirement of 8% of risk-weighted assets, capital ratios remain below the European average. The two largest banks by asset size, Unicredit and Intesa Saopaola, Italy Commercial Banking Report Q2 2012 © Business Monitor International Ltd Page 25 have tier 1 capital ratios of 10.0% and 11.5% respectively, compared to the EU average of 12.3%. Doubts about Italian bank asset quality - rising non-performing loans (NPLs) and large holdings of Italian government debt - will further increase the incentive to boost capital in 2012. In addition to rising NPLs and increasing capital buffers, credit growth will be constrained by liberalisation measures taken by the Monti government that cap bank charges, thereby reducing bank profitability. The preponderance of small- and medium-sized businesses in the Italian economy is also likely to intensify the contraction in credit growth because banks typically prefer to lend to large firms in times of uncertainty. Little Threat Of A Banking Crisis In 2012 Although banks face a difficult 2012, ECB and Bank of Italy (BI) liquidity provisions have removed the immediate threat of a funding crisis. The BI announced that Italian banks drew on EUR139bn at the February LTRO, having tapped over EUR100bn at the December round. We expect banks to use these super-cheap three-year loans to rebuild capital and help cover their funding requirements for 2012. In addition, we believe that the BI has taken a much more active role in providing liquidity to the banking system. The ECB granted the BI an Emergency Liquidity Assistance (ELA) facility that allows it to provide the banking system with funds. The BI lent heavily to the banking system betw

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