Italy banks may need ECB loans rollover to avoid credit crunch: MPS
Italian banks may need to roll over cheap three-year loans they took from the European Central Bank to avoid a credit crunch, the chairman of the country's third-biggest lender, Banca Monte dei Paschi di Siena (MPS) , said on Thursday.
Italian lenders borrowed 255 billion euros of ECB loans in December 2011 and February this year.
MPS Chairman Alessandro Profumo said the lenders used that money to plug a funding gap after wholesale and interbank markets essentially froze due to the euro zone debt crisis.
"If we have to give all that money back in two years' time there (will be) a credit crunch and growth will be just a dream," he told a conference on banking regulation.
"Presumably there will be rollovers," he said, without elaborating.
Italian banks have managed to avoid the sort of property lending bubble that has plagued their Spanish counterparts, but they have been hit hard by the debt crisis because of their vast holdings of Italian government bonds.
Profumo said the main problem for Italian banks was their loan-to-deposit ratio, which is well above 100 percent.
"The commercial loan-to-deposit ratio in Italy is 128 percent, with the extra 28 percent currently covered by the ECB loans," Profumo said.
"Until a few months ago the deficit was plugged by institutional investors...That is no longer the case because we are a peripheral country, so we need to understand how to close that funding gap," he said.
Italian lenders are gradually cutting their loan books, also because a deep recession in Italy is forcing them to set aside more money to cover for risky loans.
Profumo said however that Italian banks were unlikely to be much affected by a proposal from an EU advisory group to separate higher-risk banking activities from traditional deposit-taking businesses.
Banks with either trading assets of more than 100 billion euros ($129 billion) or 15 percent to 25 percent of their total assets would have to adhere to the new rules, which were unveiled on Tuesday by an EU advisory group led by Bank of Finland Governor Erkki Liikanen.
"I don't see a specific impact," said Profumo of the non-binding proposal. "None of us (Italian banks) get to 25 percent."
According to a slide shown at the conference by Marco Mazzucchelli, a member of the Liikanen advisory group, assets held for trading by Italian banks accounted for less than 20 percent of total assets in 2011.
(Reporting by Siliva Aloisi and Gianluca Semeraro; Editing by David Holmes and M.D. Golan)