November 9, 2017 / 7:31 PM / a month ago

Banco BPM CEO says won't need to raise capital due to bad loans

MILAN, Nov 9 (Reuters) - Banco BPM will have enough capital to raise its bad loan reduction goals if needed and won’t need to tap investors for cash, the chief executive of Italy’s third-largest bank said on Thursday.

Italian banks with still a large bad loan burden have come under pressure this week after mid-sized lender Creval announced a 700 million euro share issue to offset the hit from planned bad loan disposals.

Creval plans to reduce soured loans to around 10 percent of total loans, a level which is coming to be seen as a benchmark for the industry.

Banco BPM expects soured debts to still account for 16 percent of total loans in 2019, based on slides published on Thursday, but CEO Giuseppe Castagna ruled out the bank would need to raise capital to step up disposals.

“We’ll have excess capital ... for further bad loan sales or to increase provisions if necessary,” he said.

Banks burn through capital when they offload bad debts as they normally sell them at a loss.

Castagna added he would have a better idea by the end of the year of the size of the bank’s capital buffer and declined to say what impaired loan ratio Banco BPM may target. However, he said levels of 11-12 percent could be seen as reasonable.

Banco BPM aims to close a 2 billion euro bad loan sale this year and targets another 3.5 billion euros in the first half of next year to meat goals agreed with the European Central Bank. (Reporting by Valentina Za, editing by David Evans)

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