MILAN, April 18 (Reuters) - Residents’ deposits with Italian banks in March posted the biggest growth rate in 17 months, but foreign funding continued to decline sharply and non-performing loans rose, reflecting market turmoil and a deteriorating economic outlook.
A monthly report by Italy’s banking association ABI released on Wednesday said deposits held by residents were up 1.6 percent last month, the biggest rise since October 2010 - reversing months of declines or flat growth.
But deposits held by foreigners fell by 16 percent in February - the last month for which data are available - compared to the previous year, the eighth consecutive monthly decline. Net funding from abroad stood at 182 billion euros, down 32.5 percent year-on-year.
The data mirror the funding squeeze Italian banks have faced since last summer, when the euro zone’s third largest economy was dragged into the bloc’s sovereign debt crisis and its lenders were gradually shut out of the interbank and wholesale funding markets.
Since then, funding conditions have improved as Italian lenders borrowed heavily form the European Central Bank, scooping up 255 billion euros of cheap three-year loans in December and February.
With the Italian economy mired in recession, gross non-performing loans rose 16.5 percent to 107.6 billion euros in February.
Credit quality deterioration was marked compared to the levels seen before the start of the financial crisis, ABI said, with bad loans as a percentage of loans to the private sector more than doubling to 6.3 percent in February from 3 percent in June 2008.
The growth in the overall volume of loans to the private sector stood at 0.9 percent in March, little changed from the month before, a sign credit expansion remains sluggish despite the ECB cash flood. (Reporting By Silvia Aloisi)