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Popolare Vicenza, Veneto Banca told to shed bad loans

The European Central Bank asked Banca Popolare di Vicenza SpA and Veneto Banca SpA to map out new strategic plans and measures designed to reduce their nonperforming loan portfolios, following the regulator's annual supervisory review and evaluation process.

The two Italian banks, which are studying a possible merger, on Dec. 16 said the ECB also required them to hold at least a 10 percentage-point buffer over the minimum liquidity coverage ratio, which is set at 80% for 2017.

In 2017, Popolare di Vicenza will be required to have a transitional common equity Tier 1 ratio of 8.75%, a transitional Tier 1 ratio of 10.25% and a transitional total capital ratio of 12.25%. As of June-end, the bank's transitional CET1, Tier 1 and total capital ratios stood at 10.75%, 10.75% and 12.40%, respectively.

Meanwhile, Veneto Banca will be required to have transitional CET1, Tier 1 and total capital ratios of 8.75%, 10.25% and 12.25%, respectively. The bank's transitional CET1, Tier 1 and total capital ratios were 10.74%, 10.74% and 12.57%, respectively, at the end of June.

Both banks warned that their regulatory capital ratios at the end of 2016 could be impacted by balance sheet reviews being carried out under tough market conditions.

Meanwhile, Panfilo Tarantelli, CEO of Italian credit manager Credito Fondiario SpA, said Popolare di Vicenza and Veneto Banca are preparing to off-load 8 billion of bad loans, Reuters reported Dec. 15. Tarantelli said his company has already completed due diligence on the €8 billion portfolio and that the loans could be sold over the course of 2017 through a securitization deal, Reuters added.

The two banks, which have been taken over by Italian rescue fund Atlante, held €8.5 billion of bad loans at the end of June.