MILAN, July 12 (Reuters) - Italian banks must improve the quality of bad loan data and use them to understand when to raise provisions on debts which are yet to be declared insolvent, the central bank governor said on Wednesday.
A harsh recession which ended in 2014 saddled Italian banks with impaired debts that are still running at around 15 percent of total lending, three times the European average. Banks are under pressure by European banking regulators to cut their soured loans.
In a speech to the Italian banking association, Bank of Italy Governor Ignazio Visco said bad loan data had improved thanks to regulatory demands but was still inadequate.
“The quality of information (provided by banks), initially low, is improving ... (but) there are further margins for improvement,” he said.
Poor data increase the risk for buyers of bad debts and widens a price gap that puts a brake on sales as banks can only sell at a loss.
Visco said better quality data could help banks more actively manage doubtful loans before borrowers become insolvent so that they could either help them get back on their feet or, where necessary, raise provisions.
Provisions on average cover 60 percent of the value of loans to insolvent borrowers while the coverage of so-called ‘unlikely-to-pay’ loans is lower.
“Unlikely-to-pay loans account for half the value of impaired debts ... banks must intervene quickly with debt restructuring accords to return businesses to a sustainable track,” Visco said. (Reporting by Valentina Za)