UPDATE 3-Monte dei Paschi leads slide in Italian bank shares on loan concerns

* ECB request for bad loan data triggers second day of heavy falls

* Investors fear ECB will require more loan writedowns

* ECB says request standard procedure, targets technical aspects

* TABLE-Bad loans at Italian banks (Adds banking sources on request, Consob extending ban, Padoan comment, link to table, updates final prices)

By Silvia Aloisi and Valentina Za

MILAN, Jan 19 (Reuters) - A request by the European Central Bank for more information on Italian banks’ bad loans triggered a second day of steep share falls as investors worried that lenders will be forced to make heavy writedowns on soured debt.

Italian banks are saddled with around 200 billion euros ($217 billion) of loans that are unlikely to ever be repaid.

Total impaired debts accounted for 17.5 percent of gross loans in Italy at the end of September, compared with only 2 percent in Germany, 4 percent in France and 7 percent in Spain, according to Royal Bank of Scotland.

Monte dei Paschi, Italy’s third-largest bank and the worst performer in Europe-wide checks on banks in 2014, was again the biggest loser with a fall of 14.4 percent on Tuesday, having shed 15 percent on Monday.

Market regulator Consob said on Tuesday it was extending a ban on short-selling of Monte dei Paschi shares to Jan. 21.

Banco Popolare slid 6.3 percent, while UniCredit , Italy’s biggest bank, dropped 3.5 percent.

Shares of Tuscan bank Monte dei Paschi, where bad debts represent 22 percent of all loans, have now lost 47 percent since the start of 2016 on concerns about its ability to whittle down its mountain of soured loans and its failure to find a merger partner.

Monte dei Paschi is one of six Italian banks that on Monday put out statements at the request of market regulator Consob to say they had received or were about to receive requests from the ECB for more data on their management of non-performing loans.

The other lenders affected are UniCredit, Banco Popolare, Banca Popolare di Milano, Popolare dell’Emilia Romagna and Carige.


Demand for credit is slowly strengthening in Italy as the euro zone’s third-largest economy emerges from a long recession, but banks’ ability to lend is limited in part because bad loans tie up their capital.

Analysts said it was not clear how those banks had been chosen, given that their bad loan exposure was not the same across the board and that their accounts were already combed by the ECB in the 2014 stress tests.

But they said the ECB requests would fuel fears the bank supervisor could at a later stage demand additional writedowns on soured debts, which in turn could force banks to tap the market again for cash.

If the 80 percent writedowns imposed on four small, ailing banks rescued by the Italian government last year were extended to the rest of the banking sector, that would translate into around 20 billion euros of after-tax losses, according to Reuters calculations.

“We see the risk that potential further regulatory uncertainty ... could backfire on the banking system’s stability, potentially triggering unwanted repercussions on the funding and solvency fronts,” said analysts at Mediobanca Securities in a note.

They said this could also impede a wave of mergers among Italian cooperative banks that is expected this year with the aim of reducing the number of lenders and strengthening them.

Banking sources said the ECB plans to make recommendations to euro zone banks on how to manage bad loans and they could range from hiring more staff to deal with the issue, changing internal practices, to making more provisions, reviewing the value of soured loans or even creating a bad bank.

An ECB spokesman said the request for additional information on bad loan management was made to many euro zone banks and is “standard supervisory practice”. The spokesman said the request targeted technical aspects on bad loan management.

Economy Minister Pier Carlo Padoan said the ECB’s request did not signal any specific concern for Italian banks.

However, that failed to reassure investors. In a sign of already growing strains on funding for some banks, the plunging share prices lifted the yield on a 2020 subordinated bond issued by Monte dei Paschi to 18.75 percent, from just above 10 percent on Friday, Reuters data showed.

The yield on a December 2020 subordinated bond by Banca Carige rose to 15.86 percent.

The Italian government has sought to come up with a plan to help banks offload bad loans, but its proposals have repeatedly been rejected by the European Commission on the grounds that they violated state aid rules. ($1 = 0.9205 euros)