November 9, 2018 / 12:05 PM / 3 days ago

UPDATE 1-Italian banks' bad loans fall to six-year low

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MILAN, Nov 9 (Reuters) - Bad loans on Italian bank balance sheets fell to their lowest level in about six years in September, central bank data showed on Friday.

Defaulted loans fell by 22.7 percent in the year to September after falling 20.8 percent in the year to August, helped by deals to securitise the bad debts, the Bank of Italy said in a monthly report.

Bad loans at Italian banks totalled 122.5 billion euros before writedowns in September, the central bank said, compared to 126.3 billion in August. They had topped 200 billion euros in early 2017.

Italian banks piled up bad loans during a deep recession that wiped out one quarter of the country’s industrial output.

They have been under regulatory pressure to reduce them and a market for bad bank loans in Italy picked up steam last year.

However, political uncertainty and a slowing economy are now casting a shadow over Italy’s distressed asset sales.

Bad loan specialist Banca IFIS said on Thursday that pressure arising from strong demand that had pushed up prices in early 2018 had waned and prices were now falling.

Banks normally offload these assets at a discount so lower prices imply a bigger loss for lenders.

Rising risk premiums on Italian assets under an anti-austerity government have also made more expensive a state guarantee scheme devised by Italy’s previous government to help banks shed bad debts through securitisation deals. (Reporting by Valentina Za Editing by Hugh Lawson and Edmund Blair)

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