February 2, 2019 / 3:56 PM / 6 months ago

RPT-Italy banks funding under pressure due to spike in govt debt yields - Bank of Italy

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MILAN, Feb 2 (Reuters) - A spike in yields on Italian debt in recent months has caused renewed funding problems for the country’s lenders, Bank of Italy governor Ignazio Visco said on Saturday.

Italy’s benchmark 10-year BTP bond yield spread over its German equivalent rose to a 5-1/2 year high of 340 basis points in October at the peak of a budget squabble between Rome and Brussels.

In an address to a banking conference Visco said: “The recent resurfacing of tensions in the government securities market has made it harder (for banks) to access international markets”. He did not elaborate.

The BTP/BUND 10-year spread fell back below 300 basis points only in December, when Italy signed a last-minute agreement with the European Union to cut its deficit target for this year to 2.04 percent of GDP.

Italian banks have around 56 billion euros ($64 billion) in bonds maturing this year and the European Banking Authority (EBA) has forecast they will issue a similar amount in unsecured long-term bonds to refinance that debt.

Visco said the European Central Bank (ECB) would continue to support liquidity for banks for as long as the euro area’s financial situation requires.

“However, restoring normal access to wholesale markets is a prerequisite for the proper functioning of banking activities,” he added.

Italian banks rely on some 240 billion euros of ultra-cheap, longer-term funds borrowed from the ECB in 2016 and 2017, but that source of funding is shut and without replacing so-called TLTRO funds Italian banks will see a drop in their net stable funding ratios (NSFR), a long-term liquidity measure monitored by regulators.

From June 2019 Italian banks will be forced to gradually exclude from their NSFR calculations some 140 billion euros in TLTRO funds which are due to be repaid in June 2020. ($1 = 0.8731 euros) (Reporting by Giselada Vagnoni, writing by Giulio Piovaccari, editing by David Holmes)

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