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Monte dei Paschi ramps up bad loan disposals as profits slump

Banca Monte dei Paschi di Siena SpA is focused on speeding up the pace of bad loan disposals, CEO Marco Morelli told analysts during a call for the Italian bank's second-quarter earnings.

Gross nonperforming exposures, or NPEs, stood at €15.9 billion at the end of the first half, or 16.3% of all loans, compared with €16.8 billion a year previously.

Morelli said the bank was on track to reduce NPEs to 12.7% by the end of 2019, two years ahead of target.

Monte dei Paschi is expecting to reduce bad loans by a further €2 billion by the end of 2019 and has teed up two portfolio sales: a 1.2 billion portfolio of unlikely-to-pay loans and a €400 million portfolio of bad loans, both which have reached binding offer stage.

Separately, Monte dei Paschi agreed to sell nonperforming loans with an aggregate value of around €690 million to illimity Bank SpA, in a deal announced July 31, after the earnings period had ended.

The bank took a 49 million hit during the second quarter thanks to a decision to make an early exit from Juliet SpA, a serving unit for bad debts that it had sold earlier to Quaestio Holding SA and Cerved Group SpA.

The decision will give the bank "more flexibility in the deleveraging of NPEs" and the positive effects will offset the exit fee, Morelli said during the call.

However, the decision ate into profits for the second quarter, which came in at €65.2 million, down from €100.9 million in the same period in 2018.

Monte dei Paschi, which was rescued in a €5.4 billion bailout by the Italian government in 2017, also saw a drop in net interest income, at €404.3 million, down from €448.5 million a year previously.