ROME (Reuters) - Italian banks will need to raise 1.2 billion euros (£1.01 billion) to meet a minimum threshold for higher-quality capital set by the European Central Bank in a planned check-up of euro zone lenders, the Bank of Italy said on Tuesday.
In its bi-annual Financial Stability Report, Italy’s banking regulator said it had already asked weaker lenders in a group of 15 due to be scrutinised by the ECB to boost their capital base and said it was keeping a close eye on them.
On average, however, the 15 Italian banks had a Common Equity 1 ratio - a measure of the best loss-absorbing bank capital - of 9.5 percent, above the 8 percent minimum requirement set by the ECB, it said.
Estimates of the capital-raising needs of Italian banks diverge, with some analyst figures as high as 20 billion euros.
The ECB is due to review European lenders’ balance sheets and to run stress-tests before taking over supervision of the banking sector from national regulators late next year.
To ensure domestic lenders tidy up their balance sheets before then, the Bank of Italy has conducted inspections, including at top lenders Intesa Sanpaolo (ISP.MI) and UniCredit (CRDI.MI), looking in particular at writedowns of bad loans.
The central bank said it had revised its guidelines urging banks to use up-to-date values to estimate loan losses.
This should make it easier for banks to offload bad loans, as at present the gap existing between book values and market prices is an obstacle to potential sales.
With the Italian economy still mired in its longest post-war recession, bad loans are a key problem for banks. Doubtful loans stood at 114 billion euros in June, net of writedowns already booked, the report said.
The report said bad loans would continue to rise in 2014, albeit at a slower pace, and credit to firms and families would continue to shrink more slowly than this year.
Another source of potential risk for Italian banks is the large stock of government bonds they hold after buying a net 150 billion euros between December 2011 and September 2013.
They could reduce those holdings in coming months after net sales of around 10 billion euros in July-September, the Bank of Italy said. The ECB will look at government bonds as part of its asset review.
Italian banks held 397 billion euros in government bonds as of end-August. Yields on the bonds have fallen as the euro zone debt crisis has eased, boosting the value of those holdings.
At the start of November Italian banks had returned only 15 percent of longer-term ECB loans used to buy government bonds, against a euro zone average of 39 percent, the report said.
ECB-funded purchases of government bonds supported lenders’ short-term liquidity positions and boosted their income.
The ECB’s three-year loans must be repaid in early 2015 and Italian banks are working to meet that deadline despite still-difficult funding conditions.
Cross-border interbank lending is negligible and a higher tax rate has led to a slight fall in bonds sold to retail clients, the report said.
International funding for Italian banks improved this year, with 27 billion euros raised so far against a total 18 billion euros in 2012. However, a total of 70 billion euros in wholesale bonds mature by the end of next year.
Writing by Valentina Za; Editing by Gareth Jones