UPDATE 1-Italy banks cut loans to business, bad debts up

Thu Jan 10, 2013 5:15am EST

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(Adds data on bad loans, govt bond holdings)

MILAN Jan 10 (Reuters) - Italian banks' loans to businesses in November declined at the fastest pace since records began in 2001 while bad debts rose to nearly 122 billion euros ($159 billion), Bank of Italy data showed on Thursday.

Data from the central bank also showed that private sector deposits rose 6.6 percent in November from a year earlier, after an increase of 4.7 percent in October.

Lenders however did not pour that money back into the economy, and loans to non-financial firms fell 3.4 percent - the seventh consecutive monthly decline and the biggest drop since the statistics series started in July 2001.

The fall in lending to companies is exacerbating a credit crunch in the euro zone's third largest economy, which has been stuck in a recession since the middle of 2011.

Instead, banks continued to pile into Italian government bonds, taking their holdings to 344.3 billion euros from 340 billion euros a month earlier.

Bad loans, a major concern for investors, rose by 16.7 percent from a year earlier to 121.8 billion euros. By comparison, bad loans totalled 77.8 billion euros in 2010. ($1 = 0.7667 euros) (Reporting by Silvia Aloisi and Gabriella Bruschi; Editing by Catherine Evans)

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