July 10, 2018 / 12:13 PM / a year ago

UPDATE 2-Italian bank deposits grow in May despite recent market turmoil

* Growth of Italian banks deposits accelerated in May

* In May tensions over new government unsettled markets

* Economists point to rising public support for government (Adds comments)

By Francesca Landini

MILAN, July 10 (Reuters) - Deposits at Italian banks rose 5.7 percent in May on an annual basis, accelerating from a 4.3 percent rise in April, Bank of Italy data showed, soothing concerns over an outflow of money from lenders’ accounts due to political tensions.

In May, the leak of a draft programme for a new populist government sparked a sell-off of Italy’s government bonds and shares.

Some analysts said in recent weeks the deposits data was key to establishing whether the confidence crisis that prompted investors to dump banking stocks had also affected depositors.

Economists say, however, that the popularity of the new government among Italians has increased since the formation of the 5-Star Movement and League coalition, limiting the prospect of an outflow of deposits.

In addition, the focus of the new government has shifted towards promoting growth and away from debating membership of the euro, calming financial markets.

“Deposits data published today are even better than my expectations,” said Raffaella Tenconi, Chief Economist at independent research firm Ada.

“I don’t see any negative impact on deposits in this phase since the approval rating of citizens for the government has risen ... the majority of Italians are not worried,” Tenconi said.

The popularity of the coalition government has increased since it took office in early June, with its two main parties surging in opinion polls to about 30 percent of public support.

The data could also signal a change in the attitude of Italians about investments, Lea Zicchino, partner at consultant firm Prometeia said.

“In a period of uncertainty you normally invest less and keep more cash in your bank account ... this is what is happening to Italian companies. This phenomenon could even increase deposits,” Zicchino said.

“We don’t expect a deposit flight even in the coming months, unless something unexpected and catastrophic occurs.”

Tenconi suggested that net foreign direct investment would be a better indicator of the government’s effectiveness in the next few months.

Data released on Tuesday also showed that net bad loans at Italian banks fell to 49.27 billion euros ($57.77 billion) in May, coming in below 50 billion euros for the first time since March 2012. ($1 = 0.8528 euros) (Editing by Agnieszka Flak, Jon Boyle and Peter Graff)

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