ECB piles more pressure on Italian mid-tier
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ECB piles more pressure on Italian mid-tier

Lenders recoil at new deadlines for 100% NPL coverage; ECB throws spanner in works of Banca Carige capital raising.


For Italian mid-tier banks, it was another unwelcome surprise. 

New European Central Bank guidelines will require lenders to entirely cover new non-performing loans within two and seven years for unsecured and secured loans, respectively. 


The proposal, announced in October, has most relevance in Italy because it has Europe’s biggest pile of soured loans – on average only 60% covered – and a sluggish legal enforcement system. Italian mid-tier lenders are also heavily reliant on collateralized lending to risky small and medium-sized enterprises in their regions.

Mid-tier Italian banks such as Banco BPM, BPER Banca and Credito Valtellinese, have gross NPL ratios above 20% and all saw their stocks fall after the announcement. 

BPER and Valtellinese, both smaller than newly merged Banco BPM, lost around 20% of their equity value in the three weeks following the news. Shares in top-tier lenders Intesa Sanpaolo and UniCredit, which have group NPL ratios of 13% and 11%, respectively, were more lightly impacted. 

Although the regulation only applies to new NPLs after January 1, 2018, analysts at UBS estimate that there could be a bigger impact on banks’ 2017 results than in 2018, as lenders might reclassify forborne loans to avoid them falling under the new guidelines. 

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