MILAN, Jan 21 (Reuters) - Italian banks cut lending for the 20th consecutive month in December while bad debts kept rising, data showed on Tuesday, highlighting the lasting impact of tight credit and recession in the euro zone's third-largest economy.
Italian lenders are struggling with bad loans, which are increasing even as the economy begins to emerge from the longest downturn since World War Two, and still-challenging fundng conditions.
In turn, banks are curbing lending to boost their capital. Loans to households and businesses fell by 3.4 percent in December from a year earlier, though this was less steep than the 4.5 percent decline in November, data from Italian banking association ABI showed.
Gross bad debts rose to 149.6 billion euros ($202.9 billion) in November on an annual basis, with the number of bank customers having problems paying back their debts reaching 1.2 million. Bad loans were up 23 percent from a year ago and have risen by 45 billion euros in the past two years.
Direct funding - deposits and bank bonds - fell by 1.8 percent in December, hit by seasonal factors such as tax payments, ABI said.
Italy's top five retail banks are Intesa Sanpaolo, UniCredit, Monte dei Paschi di Siena, Banco Popolare and UBI Banca. ($1 = 0.7373 euros)
Reporting by Silvia Aloisi; Editing by David Goodman