Italian banks face rising costs from 'bail in' debt - Bank of Italy

MILAN (Reuters) - ‘Bail in’ debt Italian banks must issue under new rules to be introduced soon could lift their funding costs and further dent profits which are already insufficient to cover their cost of capital, the Bank of Italy said.

In its twice-yearly Financial Stability Report, the central bank said Italian banks returned on average 4.1 percent to shareholders last year net of one-off items, less than half an average cost of capital of 9 percent. For one quarter of lenders the return on equity was below 1 percent.

“The need to increase revenue and improve efficiency is highlighted by the imminent introduction of the minimum requirement for own funds and liabilities eligible for bail-in (MREL), which might make it necessary for several banks to place new large bond issues on the wholesale market with negative effects on the average cost of funding,” it said.

The Bank of Italy estimated that the country’s significant banks may face an aggregate shortfall of 30-60 billion euros (26.3-52.7 billion pounds) in MREL liabilities at the end of the transition period.

Reporting by Valentina Za