BoI urges banks to cut costs, board members

MILAN May 31 (Reuters) - The Bank of Italy called on domestic lenders to cut costs, including streamlining oversized boards, and said that it would be difficult to counter current low profitability by expanding the volume of lending.

In the text of a speech on Thursday, Bank of Italy's Governor Ignazio Visco pointed to an imbalance between lending and stable sources of funding at Italian lenders.

Deposits and bonds held by households, which are the most stable form of funding, finance 85 percent of lending, a lower share than in the past.

Visco said a rebalancing was necessary and added it would be difficult for banks "to return to a model of profitability growth based principally on expanding the volume of business."

Even excluding one-offs such as goodwill writedowns, profits in the last financial year were particularly low, he said, urging banks to cut costs, in particular labour costs, and rethink their entire distribution network.

"Bank mergers and acquisitions have not been followed up by sufficient streamlining of groups' organization or reduction in the number of board members," he said.

Visco said the ten largest banking groups had a total of 1,136 board positions, without counting foreign units.

"Such arrangements are costly in themselves and are not justified by the professional expertise needed to effectively manage banks," he said.

(Reporting by Valentina Za)