It may take ten years for Italians to fix bad debt issue

Italian banks could take 10 years to reduce their level of non-performing loans (NPLs) to the European average according to Morgan Stanley, adding that setting up a “bad bank” could help.

A recession that ended in 2014 saddled Italian banks with 349 billion euros (305.94 billion pounds) in impaired debts, one-third of Europe’s total, while a clogged judicial system and sluggish economic growth made it tough to recover non-performing debts. But a series of state-led steps involving capital injections and a plan to bailout Monte dei Paschi, the world’s oldest bank, have provided some relief.

Morgan Stanley said “We believe progress has been made but vulnerabilities remain, with 60 billion-70 billion euros of non-performing loan disposals still in the pipeline and almost 10 years to reach European NPL levels at the current rundown rate,
Last week, Bank of Italy Governor Ignazio Visco welcomed a European Union proposal to set up state-backed vehicles to buy bad loans from banks but said participation should be voluntary. Ireland, Spain and Austria have all seen their financial systems and economies emerge healthier after choosing to set up a bad bank in the aftermath of the euro zone debt crisis.

 

Source: Reuters