MILAN Feb 19 (Reuters) - Bad debts at Italian banks rose to around 125 billion euros ($167 billion) at the end of last year and lenders further cut loans to households and businesses, data showed on Tuesday.
The Italian banking association ABI said gross bad loans, which have become a major concern for lenders because of Italy's prolonged recession, rose by 16.6 percent in December from a year earlier and by around 3 billion euros between November and the end of last year.
Two years ago, bad debts totalled just under 78 billion euros. ABI expects the growth rate of bad loans to peak in the first half of this year.
Lending from Italian banks to households and non-financial firms fell by 3.3 percent in January, declining for the ninth consecutive month and at a faster pace than the 2.5 percent contraction recorded in December.
On a brighter note, retail funding continued to increase. Deposits by Italian residents rose by 6.8 percent, while bank bonds fell 5.2 percent.
ABI said that despite months of decline in loans to business, total lending by banks still exceeded retail funding by around 166 billion euros.
($1 = 0.7490 euros) (Reporting By Silvia Aloisi)