Funding pressures ease on Italy banks, bad loans up

MILAN Oct 17 (Reuters) - Funding pressures on Italian banks eased in September with the first montly rise in overall deposits in six months, but bad loans continued to increase at a double-digit rate, data showed on Wednesday.

The Italian banking association ABI said overall deposits and bank bonds had risen 0.57 percent year-on-year in September. Deposits held by Italian residents jumped 4.7 percent while bonds bank sold to retail clients fell 6.8 percent.

The data showed deposits held by foreigners continued to fall, although at a slower pace than in previous month. In August they declined by 15.4 percent compared with a 17 percent fall a month earlier.

Higher overall deposits did not translate in increased bank lending. Loans to non-financial businesses and families fell 2.6 percent, the fifth straight monthly decline and the worst deterioration in at least two years.

Also, bad loans rose due to Italy's recession. In September, they totalled nearly 116 billion euros, up 15.6 percent from a year earlier. (Reporting by Silvia Aloisi)