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Smaller Italian banks at risk of going out of business, central bank warns

A number of smaller Italian banks, particularly those operating in the nation's underdeveloped south, are in danger of going out of business, Banca D'Italia SpA Deputy Governor Alessandra Perrazzelli warned lawmakers, Reuters reported.

"A crisis of banks rendered more fragile by their small size or their inability to modernize their business model is a concrete risk," Perrazzelli reportedly said at a parliamentary hearing on the rescue of struggling Banca Popolare di Bari SCpA.

"We need to avoid a traumatic exit of these banks from the market," she added.

The central bank official pointed to 16 banks based in the south of Italy, which accounted for 12% of the total loans granted to companies in the region. Perrazzelli said southern firms' smaller size and lower productivity made them riskier borrowers, noting that in the south, the share of impaired loans on total lending is more than double the country's average, according to the report.

Popolare di Bari, the biggest lender in the south, is being rescued by the state and depositor protection fund FITD, which is funded by other Italian lenders. One of its temporary administrators said the initial estimate of a €1.4 billion capital deficit at the bank could change following a detailed assessment of its loan book and legal risks, Reuters wrote.

Following its acquisition of ailing Banca Tercas SpA as part of a bailout plan, Popolare di Bari completed a €550 million capital raising in 2014-2015, in part by issuing new shares and by selling riskier junior bonds, the report noted.

Prosecutors in Bari are investigating whether the bank's 70,000 shareholders, who are likely to suffer losses following its capital increase, were victims of misselling. Perrazzelli said it is necessary to have compensation schemes for small investors in case there is potential misconduct in the way Popolare di Bari placed shares in its previous capital increases, according to the report.