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Update: Italian bank shares fall amid report of ECB's bad debt coverage demands


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Update: Italian bank shares fall amid report of ECB's bad debt coverage demands

Shares in Italian banks fell after a media report claimed the European Central Bank had asked lenders to cover 100% of their existing nonperforming loans, not just newly soured debt, within seven years, Bloomberg News reported Jan. 15.

Earlier in the day, Unione di Banche Italiane SpA shares slumped 8.8%, UniCredit SpA fell 3.5% and Intesa Sanpaolo SpA was down 2.8% before the banks pared losses.

On Jan. 14 Banca Monte dei Paschi di Siena SpA shares fell 9% and were suspended after it said the ECB had warned it over its capital position and profitability.

Italy's deputy prime minister Matteo Salvini responded Jan. 15 by accusing the ECB of "attacking" the country's banking sector.

"The new attack by the ECB supervisor on the Italian banking system ... not only does not make our financial system more stable, but it causes instability," Salvini said, Reuters reported.

Earlier, a source told Bloomberg that the ECB "did not broadly tell lenders under its supervision that they need to boost their coverage," and denied the media report by Italian newspaper Il Sole 24 Ore.

Meanwhile, Reuters reported that the ECB will give a target date to all its supervised banks to fully provision for their bad debt in the same vein as they treat newly soured debt.

However, the medium-term date could vary from bank to bank and would be an expectation rather than a binding requirement, a source told the newswire.

Following the report, BPER Banca SpA, Banco BPM SpA, UBI and Intesa released statements clarifying that the NPL coverage demands would not have a significant impact on their income and balance sheets for 2018. UniCredit did not immediately release any information.

In October 2017, the ECB unveiled its NPL guidance giving banks two years to cover 100% of unsecured soured debt and seven years to cover secured bad loans.

Although the guidance only covered loans that turned bad after Jan. 1, 2018, speculation suggested that the ECB planned to increase capital requirements for all bad loans, not just newly formed ones, causing a flurry of criticism from Italian banks and politicians, as well as resistance from the EU Council.