Italian banking sector may be set 'to turn the corner', Oxford Economics says
A research report prepared by Nicola Nobile of Oxford Economics suggests that Italy's troubled banking sector may almost be ready to right the ship and give the nation's economy a much-needed boost.
The Italian government announced last month that it had injected significant taxpayer money into troubled lenders Monte dei Paschi di Siena (MPS) and Banca Intesa, increasing the country's already high level of public debt, which if it had interceded earlier, would have been significantly less of a burden to the exchequer.
However, the report said that these balance sheet clean-ups would kick-start the flow of credit in Italy, reviving growth in the Eurozone's third largest economy.
Nobile gave what she called a "rather anaemic forecast" for the rate of Italian GDP growth of around 1% for the next two years but said once demand for credit picked up that might drive a faster rate of economic expansion.
Data sourced from the Bank of Italy appeared to show that bad loan sales had already commenced. Gross bad debt was down €10bn in June from its €202bn mark a month earlier and net bad debt was around €70bn, its lowest point in the last four years.
If Italian banks were successful in moving on a third of the total problem loan stock elsewhere in the coming months, the OE report said they could bring the total to below €150bn with net loans below the €60bn mark.
A drop in nonperforming loans would remove one constraint to the supply of credit, but needed to be followed by a recovery in demand for loans, she added.
Overall, the senior economist said, "the bad debt sell-off coupled with an increasing demand for credit and improving markets evaluation, could lead to an increase in corporate credit growth. In the case of Spain, credit flows started to improve about a year after NPLs began to decline, so perhaps this can give us a broad idea of what’s in store for Italy."