* Bad loans at highest level since June 1998-BOI
* Growth rate accelerating, lending falls
(Adds historical comparison, analyst quote, bond data)
MILAN, June 7 Bad debts at Italian banks rose in
April to their highest level since records began in June 1998,
showing no let-up as the country struggles with its longest
recession since World War Two.
Non-performing loans - the problematic loans least likely
ever to be paid back under Italian classifications - rose to
133.3 billion euros ($175.9 billion), up 22.3 percent from the
same month last year, data from the Bank of Italy showed.
The April data show not only that bad debts, which usually
lag economic activity by 12 to 18 months, are not falling, but
that they are increasing at a faster rate. In March the rate of
growth in bad loans stood at 21.3 percent, the highest since
The figures appear to contradict a more upbeat mood at the
country's two biggest banks, UniCredit and Intesa
Both lenders said last month that net bad loan inflows in
the first quarter of the year had slowed down from the previous
quarter, suggesting the problem may be easing.
But analysts say bad debts will keep rising throughout 2013
on the weakness of the Italian economy, which the Organisation
for Economic Cooperation and Development expects to shrink by
1.8 percent this year and moderately recover in 2014.
"If the Italian economy starts picking up at the end of 2013
we would expect bad loans to remain high until the end of 2014,"
said Eleni Papoula, banking analyst at Berenberg.
She said Italian lenders were likely to delay increasing
provisions for bad debts to the fourth quarter of this year so
the full impact of rising bad debts would not show in the
The increase in problematic loans, which force lenders to
set aside more cash to cover for them, is also exacerbating a
credit crunch in the euro zone's third-biggest economy, the
central bank's data show.
Lending to businesses fell for the 12th month in a row,
dropping 3.7 percent in April.
By contrast, lenders increased their holdings of Italian
government bonds by more than 15 billion euros to 378 billion
euros - a new record high.
($1 = 0.7579 euros)
(Reporting by Silvia Aloisi, editing by Stephen Jewkes)