Bank of Italy examines loan books of top two banks - sources

Italy's largest bank UniCredit is pictured in downtown Milan September 12, 2013. REUTERS/Stefano Rellandini

By Valentina Za

MILAN (Reuters) - The Bank of Italy is examining the loan books of the country's top lenders UniCredit and Intesa Sanpaolo, three banking sources said on Tuesday, in its push to tidy their balance sheets before next year's sector check-up by the European Central Bank (ECB).

Non-performing loans at 20 Italian lenders have already come under the scrutiny of the central bank, but one senior banker said these latest inspections were expected to focus on performing loans rather than bad debt.

A bank analyst who asked to remain anonymous said that a possible reason for such a change of focus is to check that banks are not granting repeated payment extensions to borrowers to avoid classing loans as non-performing.

Bad loans remain the Achilles' heel of Italian banks struggling to contend with a two-year economic recession that has caused great pain among bank-reliant and undercapitalised domestic companies.

"Inspections focusing on the loan portfolios have recently started at Intesa and UniCredit and are currently ongoing," one of the banking sources said.

A second source said that the central bank was motivated by the asset-quality review the ECB is due to carry out before it takes over supervision of euro zone banks from national regulators in about a year's time.

The central bank, UniCredit and Intesa Sanpaolo all declined to comment.


In its previous bad-loan review, the Bank of Italy demanded that real estate assets backing loans be valued by the banks at their likely selling price, which forced lenders to increase loan-loss provisions.

For eight of the 20, the central bank extended its investigation to cover both performing and non-performing loans.

The central bank keeps a close eye on Intesa and UniCredit, which account for about 50 percent of the country's total banking assets. The two lenders have teams of Bank of Italy officials running on-site inspections most of the time.

Bank of Italy Governor Ignazio Visco said in a speech last week that credit quality was the focus of the regulator's supervisory efforts, carried out on and off site.

"The aim in particular is to make sure that the coverage ratios of deteriorated loans remain adequate," he said.

The loan coverage ratio measures a bank's ability to absorb potential losses on loans. Italy's sector-wide average coverage ratio for the entire portfolio of bad debts stood at 38.8 percent at the end of 2012, the Bank of Italy said in April. The figure was 41 percent for the top five lenders.

Visco said last week that problematic loans at Italian banks totalled about 190 billion euros (161 billion pounds) excluding writedowns already booked.

(Additional reporting by Francesca Landini and Andrea Mandala; Editing by David Goodman)