ROME: Italy’s finance minister sought on Tuesday to ease worries that his country’s battered banking sector may pose risks to the euro zone, and said that recapitalisation needs for its weakest lenders were overstated. Italian banks, struggling with capital shortfalls and 360 billion euros ($399.53 billion) worth of non-performing loans, have become a focus of concern in Europe, particularly after Britain’s vote to leave the European Union.
Pier Carlo Padoan said Italy’s banking woes had not been discussed at a regular two-day meeting of European finance ministers in Brussels that ended on Tuesday, although several ministers from other countries openly commented on the issue. Speaking to a larger-than-usual group of foreign reporters at a news conference, Padoan said Italy’s “banking system is solid and has only a very few specific critical situations”. He did not single out any specific lender.
Czech finance minister Andrej Babis tweeted on Tuesday during the meeting: “Everyone is talking about Brexit as a big problem, but that is just speculation. The health of some Italian banks may be a bigger problem for Europe.” Asked about Babis’s comments, Padoan declined to respond directly but told the news conference it was “unfounded” to say that Italian banks pose a high risk. Babis’ remarks echoed similar comments by the Bank of England Governor Mark Carney who said earlier on Tuesday Italian banks posed economic risks and some may need to be recapitalised. “There is a perception of the Italian banking system that is completely distorted in terms of figures, bad loans and recapitalisation needs that may be necessary,” Padoan said, without giving figures on banks’ possible capital needs.
Italy is in talks with the EU’s executive European Commission to find a way of supporting its weakest banks, including Monte dei Paschi di Siena within the strict framework of EU rules, which dictate that private investors must take losses before state aid can be granted to lenders.
Rome wants to limit losses for private investors, a category that includes thousands of Italian savers. When the Italian government wiped out small investors in the rescue of four tiny lenders in November, mass protests and the suicide of one saver followed. Any public intervention would be done “in full protection of households and savers,” Padoan said. On Monday, the head of euro zone finance ministers Jeroen Dijsselbloem said that bailouts would have an impact on private investors.
The Italian government is planning “precautionary instruments” to be deployed to back lenders, if needed, and “completely in line with EU rules”, Padoan said. Rome is working on a scheme to buy bank shares in case market-driven recapitalisations may not be feasible.
Under stricter EU rules, in place since January, lenders can receive state aid only after European stress tests reveal a capital shortfall. Padoan acknowledged this precondition during the news conference. The results of the next European banking tests will be announced on July 29, which gives the Italian government less than three weeks to agree a plan with Brussels.
