Italy government fund has room to recapitalize other banks after Monte Paschi: Bank of Italy


Twenty billion euros ($21.4 billion) earmarked by the Italian government will be enough to help recapitalize other weak banks after Monte dei Paschi di Siena, the Bank of Italy governor said on Saturday.

Ignazio Visco did not name any banks that may need government support to bolster their capital but bankers and analysts say Banca Popolare di Vicenza, Veneto Banca and Genoa-based Carige will likely have to strengthen their balance sheet soon.

The government is already expected to inject around 6.6 billion euros in Monte dei Paschi, taking a 70 percent stake in the bank after it failed to raise money from private investors in December.

"The injection of public funds into Banca Monte dei Paschi di Siena will presumably use up about a third of the 20 billion euros set aside by the government. There is more than enough room to address the recapitalization needs of any other Italian bank that meets the conditions laid down in the decree" Visco told a financial conference in Modena.

"However ... the banks must be willing to apply for public support and deal with the ensuing commitments."

The headquarters of Banca Monte dei Paschi di Siena SpA, the oldest surviving bank in the world and Italy's third-largest bank.
Matt Clinch | CNBC

Visco said Italian banks, weighed down by low profitability, high costs and a pile of bad loans accumulated during a painful recession, could no longer put off much needed restructuring.

In some cases they will have to strengthen their capital, while for medium-sized banks mergers were necessary to cut costs and increase efficiency.

Visco said the bulk of Italy's bad loans were held by banks that were in a sound financial position and therefore di not need to sell them immediately. However, for weaker lenders, getting rid of soured debts was essential.

He said that recovery rates for bad loans averaged 43 percent in 2006-2015. The rate fell to 23 percent for en bloc market sales of loans to specialized investors, who demand high returns.