Bank of Italy urges small cooperative banks to merge quickly

Man walks on a logo of the Monte Dei Paschi Di Siena bank in RomeItaly’s central bank said it hopes that reforms passed earlier this year to force small cooperative banks to join forces, would lead to a swift and drastic reduction in their numbers.

Italy is pushing its lenders, which have been weakened by an economic slump, to merge to boost profits and cut costs and strengthen their ability to raise capital.

Stronger capital would make it easier for banks to offload bad debts piled up during the recession, as these are usually sold at a loss.

The government moved to reform large cooperative lenders in early 2015, leading to the merger last month of Banco Popolare and Banca Popolare di Milano to create Italy’s third-biggest banking group.

In February 2016, Rome introduced measures to force 355 small cooperative banks (BCC) to merge under a holding company with at least 1 billion euros in capital. This is set to lead to the creation of just one or two BCC groups.

Bank of Italy Chief Supervisor Carmelo Barbagallo told a seminar on Thursday the central bank expected BCC lenders to move quickly despite a timeline that gives them until May 3, 2018 to present a request to create a banking group.

“We hope that they will submit their requests already at the start of next year, so that the reform can take effect in 6-12 months,” he said.

BCC banks account for 7.6 percent of all banking assets in Italy and 15 percent of branches, slides prepared for the seminar showed.

Their core capital stands on average at 16.7 percent of assets, above an industry average of 12.4 percent. Barbagallo said the reform would speed up any capital raising.

“The reform stems from the need to overcome difficulties BCC had in boosting capital quickly when necessary,” he said.

He said the new groups to be created were expected to have an adequate capital position.

“At the beginning there will be no need to raise capital, but over time additional capital needs may arise. It will depend on credit risk meaning, ultimately, on how the economy does,” he said.

via Bank of Italy urges small cooperative banks to merge quickly | Reuters

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