Bank of Italy's Visco upbeat on growth, warns about crises for small banks

ROME (Reuters) – Italy’s economic growth is strengthening and will remain sustained for the next two years, but several of its small banks may face crises in coming months, the head of the country’s central bank said on Tuesday.

FILE PHOTO: European Central Bank Governing Council member Ignazio Visco looks on during an interview with Reuters, in Rome, Italy, May 31, 2021. REUTERS/Guglielmo Mangiapane

“The economic recovery is consolidating” after last year’s steep recession, Bank of Italy Governor Ignazio Visco said in a speech to Italy’s banking association.

He confirmed a 2021 growth forecast of around 5% made by the Bank of Italy last month, thanks to a “decisive strengthening” in the second half of the year.

“The growth phase should consolidate, remaining sustained for the next two years,” Visco said.

Turning to the banking system, Visco said Italian lenders have solid capital reserves and the ratio of new bad loans to total loans is stable at 1.1%.

Bad loans are likely to grow over coming months as a result of last year’s record economic contraction, Visco said, but the increase should be more contained than after previous recessions, thanks to government support measures, low interest rates and good economic prospects.

However he warned that some of the country’s smaller banks have “grave fragilities” and could run into trouble in coming months.

“Cases of bank crisis in the near term cannot be ruled out,” he said.

“The effects of the recession come on top of structural difficulties due to an unsustainable business model and weak corporate governance which we have repeatedly asked should be resolved, often to no avail.”

Problems were not however limited to small lenders, Visco said. The Bank of Italy was “assessing possible solutions to cases of crisis regarding some large and medium-sized banks,” he said, without naming them.

The Italian Treasury is trying to persuade the country’s second largest bank Unicredit to buy Monte dei Paschi di Siena so that the government can finally exit the troubled bank it bailed out in 2017.

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