ROME, April 29 Bad loans to Italian companies will continue to rise in coming months, the Bank of Italy said on Monday, while overall lending to the private sector continues to contract.
Bad loans in December last year amounted to 7.2 percent of all loans, the central bank said in its' twice yearly Financial Stability Report.
"There is an increase above all in bad loans to companies, especially in the construction sector," the BOI report said.
"According to leading indicators a further deterioration is underway," it added.
In more recent data, Italy's banking association ABI said this month that overall bad loans held by banks rose in February to 127.7 billion euros, up 1.5 bln from the month before.
Lending from Italian banks to households and non-financial firms fell by 2.3 percent in March, declining for the eleventh consecutive month after falling 2.6 percent in February, ABI said.
The Bank of Italy said on Monday that drop in lending is due to "declining demand for loans and the tightening of credit conditions on the part of banks," as Italy languishes in its longest recession for 20 years.
"For small firms the financial tensions are exacerbated by difficulty in accessing external sources of finance alternative to bank credit," it noted.
At the end of January, Italian government bonds amounted to 44 percent of total sovererign bond holdings by Italian banks and 9 percent of their overall assets, the report said. (Reporting By Gavin Jones)