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Monte dei Paschi eyes 10% bad-loan ratio as cleanup draws ahead of target

Banca Monte dei Paschi di Siena SpA, the troubled Italian bank rescued by the government in 2017, has pulled ahead of its cleanup targets, with a mammoth £24.1 billion bad-loan securitization set for completion in June. Managers now expect the lender's soured asset ratio to come down to about 10% in 2020, CEO Marco Morelli told a May 11 earnings call.

Such a nonperforming exposure level would be less than a third of Monte dei Paschi's current NPE ratio, but still higher than the average toxic loan figure for the eurozone of 4.4% reported at the end of September 2017.

"We are beating our internal targets in terms of UTP reduction," said Morelli, referring to nonperforming debt classified as unlikely to pay.

"This is going to be our focus from now onward in terms of reducing the overall size of nonperforming loans," he said, noting that the bank has cut its stock of such loans by €200 million in the first quarter, and has signed binding offers for another €600 million expected to be off-loaded before the beginning of June.

An additional €700 million of the bank's unlikely-to-pay loans is either under separate binding offers or being prepared for the market in the coming months, said the CEO.

"So we are aiming to hit the target of 2018 by [the second quarter]. That leads us to think that we can exceed the number in 2018," Morelli said, announcing that the bank has doubled its unlikely-to-pay cleanup target for 2019 to €4 billion.

Coupled with the securitization of €24.1 billion it began in 2017 and is set to complete in June, the bank is on the way to considerably lowering its burden of toxic loans, the CEO said, characterizing the effort as the "largest bad-loan securitization in Europe."

The bank also updated its overall nonperforming exposure target, a measure which includes renegotiated loans, from 12.9% of the book in 2021 to roughly 10% by the end of 2020. "All things being equal, I think, we can lower the 12.9% NPE target in 2021 to a number which is in the 10% area before 2021," Morelli said.

At the end of March, Monte dei Paschi had €44.8 billion in NPEs — 34.2% of all assets on a gross basis and set to decline to 19.7% after the securitization of the €24.1 billion is completed. Net of provisions, the ratio is 9.9%.

The bank's first-quarter profit was €187.6 million, up from a €169.2 million loss in the same period a year ago.