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Bank of Italy warns a number of the country’s smaller banks are at risk

Bank of Italy warns a number of the country’s smaller banks are at risk

ROME: A senior Bank of Italy official warned that a number of smaller banks, especially in the country’s disadvantaged south, were at risk of going out of business in a fast-changing industry and stressed the importance of government help.

Speaking at a parliamentary hearing on the rescue of unlisted cooperative bank Popolare di Bari, Bank of Italy Deputy Governor Alessandra Perrazzelli said emergency measures approved by the government for Bari included the possibility for state-owned bank MCC to also buy stakes in other lenders to help them restructure.

“A crisis of banks rendered more fragile by their small size or their inability to modernise their business model is a concrete risk,” she said.

“We need to avoid a traumatic exit of these banks from the market. It’s not an easy challenge. Such banks are all over Italy but the south faces a situation, including in terms of context, that is particularly difficult,” she said.

Perrazzelli spoke of 16 banks headquartered in the south of Italy which accounted for 12% of all loans extended to southern companies – a share that rose to 20% for smaller firms.

The smaller size of companies in the south and their lower productivity compared with firms located in the country’s wealthier north made them riskier borrowers, Perrazzelli said, pointing to the fact that the share of impaired loans on total lending in the south was more than twice the national average.

Popolare di Bari, the biggest bank in the south of Italy, is being rescued by the government and a depositor protection fund financed by the country’s lenders.

On Wednesday, one of the temporary administrators appointed to run the bank said a preliminary estimate of a 1.4 billion euro capital increase needed at the bank was subject to a detailed analysis of its loan book and legal risks.

The bank’s 70,000 shareholders will likely see their investment wiped out after the capital increase and prosecutors in Bari are investigating whether the investors were victims of misselling.

Perrazzelli, a former country manager for Barclays in Italy, said it was necessary to put in place compensation schemes for small investors in case of possible misconduct in the way the bank placed shares in recent capital increases.

Following the acquisition of troubled rival Tercas, Popolare di Bari raised 550 million euros in cash in 2014-15, partly through a new share issue and the rest by selling riskier junior bonds.