MILAN Jan 21 Italian banks will need to set
aside as much as 42 billion euros ($57 billion) in new
provisions for credit losses by the end of 2014 and some may
have to raise additional capital, rating agency Standard &
Poor's said on Tuesday.
It said a full recovery for the sector, which was badly hit
by the euro zone debt crisis and is struggling with rising bad
debts, remained a long way off because of Italy's weak economic
prospects and continued deterioration in asset quality.
S&P expects the stock of bad loans at Italian banks to rise
to 310 billion-320 billion euros by the end of this year, or
about 18 percent of customer loans.
That will force the lenders to set aside an additional 32
billion-42 billion euros to cover for credit losses between June
2013 and December 2014, according to the agency's estimates.
Combined loan loss reserves stood at 111 billion euros at the
end of June last year.
"The large stock of NPAs (non-performing assets) is likely
to remain a burden for Italian banks as a protracted economic
recovery and rising unemployment could lead to further asset
quality deterioration," S&P said in a report.
It said that while most banks should be able to generate
enough profits to cover for the rise in loan loss provisions,
some may require additional capital.
The agency did not specify which banks may have to raise
capital, but said the two largest lenders - Intesa Sanpaolo
and UniCredit - as well as most cooperative
banks were well positioned to meet new regulatory requirements
known as Basel III.
Two mid-sized banks that have already announced plans to
boost their financial strength at the Bank of Italy's request -
Banca Carige and Banca Popolare di Milano -
may struggle to do so within the prescribed timeframe because of
their weak corporate governance, it said.
Popolare Milano, a cooperative lender, has delayed a 500
million euro capital increase by three months to July because of
governance problems that led to the sudden departure of its CEO
at the end of October.
Carige, whose top investor is a banking foundation, has been
trying for months to sell its insurance assets to help plug an
800 million euro capital shortfall by March and avoid a big
S&P also cited still-high costs of funding and modest
profitability as two problems for Italian banks, which are
having difficulty emerging from the longest post-war recession,
now showing signs of ending, in the euro zone's third largest
It said the weaknesses of the Italian banking industry could
"become more evident" during a sector-wide health check-up by
the European Central Bank to be completed by November.
"We believe there are some downside risks to our
expectations and that the difficult domestic economic and
operating environment may be more detrimental to some Italian
banks' creditworthiness than we currently anticipate," it said.
"As a result, the outlook on the long-term ratings on most
of the Italian banks that we rate is negative."
($1 = 0.7383 euros)
(Reporting by Silvia Aloisi; Editing by Anthony Barker)