MILAN, Nov 7 (Reuters) - The head of UBI Banca said Italy’s fifth-largest bank was working hard to increase the rates it charges for customer loans to offset a sharp increase in funding rates caused by a sell-off in Italian bonds.
Italian banks have seen their financing costs shoot up, tracking a spike in sovereign debt yields under an anti-austerity government that has scared off foreign investors.
UBI CEO Victor Massiah told an analyst call on Wednesday that repricing loans was “the real battle” that Italian lenders had to fight to protect their net interest income (NII).
The NII measures the difference between interest a bank reaps on its assets and what it pays on its liabilities.
“The real battle ... is on the mark-up on lending,” Massiah said.
He added increasing the spread that banks apply on benchmark rates when pricing loans was a lengthy process and it would take time for the effects to show on the interest margin.
He said UBI would give lending margins priority over volumes although it did not want to massively reduce its loan book and hurt its client base.
“Clients are our wealth and wealth must be preserved,” he said.
UBI’s net performing client loans shrank by around 1 billion euros in the third quarter, which helped it support its core capital ratio in the face of rising Italian bond yields.
Last month, the European Commission rejected Italy’s draft 2019 budget, saying it brazenly broke EU rules on public spending, and asked Rome to submit a new one within three weeks or face disciplinary action.
The spike in Rome’s debt costs caused by the economic and political turbulence has reduced the value of lenders’ large sovereign holdings, hurting their capital buffers.
Also on Tuesday, Carlo Messina, the CEO of Intesa Sanpaolo , said Italy’s top retail bank was in the process of repricing its loan book. Intesa reduced its assets to preserve capital in the last quarter.
Massiah said he expected loan repricing would be widespread among Italian banks so as to lift lending rates from the “irrational” levels where tough competition had compressed them in the past two years.
Italy’s gross domestic product ground to a halt in the third quarter and the difficulties of the banking sector are fuelling concerns that tighter credit could put a further brake on Italy’s slowing economy.
Reporting by Valentina Za and Andrea Mandala; Editing by Adrian Croft