Italy faces the risk of a credit crunch when its banks have to repay the cheap three-year loans they took from the European Central Bank (ECB), the chairman of the country's third-biggest lender Monte dei Paschi (MPS) said on Thursday .
"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," said MPS Chairman Alessandro Profumo. "Presumably there will be rollovers," he said, declining to elaborate.
Italian banks have managed to avoid the sort of property lending bubble that has plagues their Spanish counterparts, but Profumo said the main problem for Italian banks was instead 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 told a conference on banking regulation.
He said that because of a freeze in institutional funding due to the euro zone debt crisis, Italian banks had been forced to cover their funding gap with 255 billion euros ($331.6 billion) of cheap ECB loans they took in December last year and February this year.
Profumo added 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 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." ($1 = 0.7689 euros) (Reporting by Siliva Aloisi; Editing by David Holmes)