World Economy

Italy’s $400b Soured Loans Manageable

Italy’s $400b Soured Loans ManageableItaly’s $400b Soured Loans Manageable

Italian banks’ high levels of bad debts can be managed, European Central Bank supervisor Ignazio Angeloni told a domestic newspaper, adding that the problem was not specific to Italy.

Shares in Italian banks have slumped this year on concerns about a €360 billion ($400 billion) pile of soured loans, which the ECB is anxious to see brought down. The Italian government is in talks with the EU to provide aid to the troubled lenders, hoping to shield savers, Reuters reported.

“There isn’t a specific or country-wide problem with Italy,” Angeloni told Il Sole 24 Ore in an interview published on Friday.

“Some banks are burdened by a high level of non-performing loans. The NPL problem can be managed, but shouldn’t be underestimated.”

The ECB, as the eurozone’s top banking supervisor, has made tackling bad debt one of its objectives for the year and markets fear it might force a fire sale on banks.

Sources told Reuters last month the ECB planned to give eurozone banks non-binding guidance by the end of 2016 or early 2017 to cut bad debt, raising pressure on lenders but not forcing their hand.

“We know well that re-absorbing NPLs, especially when the level is high, cannot be done rapidly, and we know that there is a trade-off between speed and value that can be extracted,” Angeloni said.

“Our goal is to help the banks use all margins of maneuver they have to solve the problem, as quickly as possible.”

He added that the Atlante bailout fund, set up recently to help stabilize Italy’s banking system, was not sufficient to address all cases where money would be required to buy up bad loans or to strengthen banks’ capital.

He said Atlante needed to build its resources, especially from private investors outside Italian banking.