February 10, 2018 / 11:35 AM / in a year

Italy's new large banking groups must be ready to boost capital - central bank

Bank of Italy Governor Ignazio Visco speaks during a meeting in Rome, Italy, October 31, 2017. REUTERS/Remo Casilli

VERONA (Reuters) - Italian lenders set to head two new banking groups being created by merging hundreds of small cooperative banks (BCCs) must be ready to strengthen their capital if needed, the central bank’s governor said on Saturday.

Italy is forcing its tiny BCC banks to merge and two new groups being formed will undergo an asset check-up this year before moving under the European Central Bank’s oversight because of their large size.

Bank of Italy Governor Ignazio Visco said in a speech in the northern Italian town of Verona that such reform was increasingly necessary.

The BCC banks found it impossible to raise equity capital on the markets and had seen their profits drop, Visco said, and had lower provisions against loan losses despite a bad loan burden which was two percentage points above the high Italian average.

“The groundwork for the establishment of cooperative banking groups must be laid more rapidly,” he told the Assiom-Forex banking conference.

“The Bank of Italy is examining the application by Cassa Centrale Raiffeisen to set up a local banking group. Discussions are currently under way with Iccrea and Cassa Centrale Banca on their applications to establish the two significant groups ... the parent banks must draw up suitable capital strengthening plans to be put into effect as and when necessary,” he said.

Turning to Italian banks in general, Visco called for lenders to be more efficient and pro-active in managing soured loans, especially those that are not yet in default, and to take advantage of new accounting rules to book more writedowns.

He said an in-depth review of business models was necessary to lift profitability in the face of technological and regulatory costs, further loan losses and rising competition in the asset management industry.

Reporting by Paola Arosio and Valentina Za, editing by Gavin Jones

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