UPDATE 1-Italy banks could take more than 200 bln euro of TLTRO funds -Visco

Thu Jul 10, 2014 6:39am EDT

Related Topics

* TLTRO programme could raise Italy GDP 0.5 pct by 2016

* ECB ready to consider acquisition of assets after TLTRO

* State intervention could help banks offload NPLs (Adds details from statement, data, comments from UniCredit)

By Giuseppe Fonte

ROME, July 10 (Reuters) - Italian banks could draw more than 200 billion euros ($272.81 billion) of funds the European Central Bank is due to offer as part of a new long-term loan programme worth up to 1 trillion euros, Bank of Italy Governor Ignazio Visco said.

Speaking to an audience of Italian bankers on Thursday, Visco also said the ECB loan programme could raise Italy's anaemic gross domestic product by between 0.5 percent and 1 percent by 2016, when the offer is due to end.

"The amount potentially available to Italian banks is considerable, it could exceed 200 billion euros over the entire time-span of the programme," Visco said.

Announced in June, and intended to boost lending to euro zone companies and thus spur economic growth in the bloc, the new targeted long-term refinancing operations (TLTROs) are due to start later this year.

Federico Ghizzoni, Chief Executive of Italy's biggest bank UniCredit, said in an interview earlier on Thursday his bank could take 14-15 billion euros of TLTRO loans and would pass on the cheap financing rates when lending to businesses.

Visco said the full impact of the programme on the Italian economy would depend on how Italian banks use the new loans.

Recent data are casting doubt on Italy's ability to emerge decisively from its longest recession in 70 years.

The country's GDP fell by 0.1 percent quarter on quarter in the first three months of this year, and figures on Thursday showed industrial output fell 1.2 percent in May from the previous month, the steepest drop since November 2012.

Economic recovery in Italy "is struggling to take hold", Visco said.

He reiterated that the ECB is ready to consider new measures if needed to lift euro zone inflation towards its 2 percent target, including large scale asset purchases, something ECB chief Mario Draghi also restated on Wednesday.

Turning to Italy's banking sector, saddled with around 165 billion euros of bad debt, Visco said state intervention could help banks offload their capital-consuming non-performing loans (NPLs). But any action should be in line with EU rules.

Banks have started to dispose of chunks of their bad-quality loans to specialised investors, but sales have been slow. Transactions in the first months of 2014 are expected to cut the overall stock of NPLs by a meagre 5 billion euros, Visco said in his speech.

Investors say uncertainties over loan valuations and the lack of a state guarantee on the worst-quality loans are a hurdle to these sort of deals.

Visco also said the euro zone crisis and the thorough review of banks' balance sheets that followed has exposed "inadequate, imprudent and incorrect" behaviour at some Italian banks.

($1 = 0.7331 Euros) (Reporting by Giuseppe Fonte and Francesca Piscioneri; Writing by Lisa Jucca; Editing by Catherine Evans)

FILED UNDER: