August 3, 2018 / 3:36 PM / 3 months ago

UPDATE 1-Italy's UBI Banca speeds up bad loan clean-up

(Adds comment from media call)

MILAN, Aug 3 (Reuters) - Italy’s fifth-largest bank UBI Banca said on Friday the bad loans on its books would fall below a key target of 10 percent of total lending sooner than expected.

The bank had lagged domestic rivals in providing details on its plans to reduce bad loans, which have long been the focus of market concerns over Italian banks.

But on Wednesday, UBI announced a long-awaited securitisation of 2.75 billion euro ($3.2 billion) in bad loans.

The bank expects to complete another sale by early 2019 and said that writedowns booked earlier this year to smooth the way for these two disposals were sufficient.

UBI CEO Victor Massiah said on a media call he expected to lower the gross soured loan ratio below 10 percent by the middle of next year, compared with an earlier goal of between 2019 and 2020.

Snubbing a growing trend among Italian lenders to use a sale of their debt collection businesses to cushion the hit from bad loan disposals and offload in this way very large portfolios, Massiah said UBI’s loan recovery unit was not up for sale.

UBI’s second-quarter net profit came in at 91 million euros ($105.43 million), slightly ahead of an 88 million euro forecast in an analyst consensus provided by the bank.

UBI said income from the core lending business rose 4.7 percent in the March-June period from the previous quarter.

Fees were little changed but the bank said they would strengthen in coming quarters.

The bank’s shares extended gains after the results, rising as much as 3 percent. They were trading 2.1 percent up by 1520 GMT, against a 0.8 percent rise in Italy’s banking index .

UBI said a drop in the value of its sovereign holdings driven by a market sell-off in Italian bonds had shaved around 56 basis points from its capital in the second quarter.

Italian bonds have come under renewed pressure this week in response to signs of government turmoil in Rome.

Italy’s benchmark 10-year bond yields stand just below 3 percent, or one percentage point above levels seen before the country’s coalition started taking shape.

The bank’s core capital, a key measure of financial strength, stood at 11.4 percent at the end of June compared with 11.6 percent three months earlier. ($1 = 0.8629 euros) (Reporting by Valentina Za; editing by Jane Merriman and Emelia Sithole-Matarise)

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