15 October, Il Sole 24 Ore
The President of the European Central Bank and the Governor of Banca d’Italia have softened the terms of the debate exploded in Italy around the proposals presented last week by the ECB regarding the management of new bad loans (NPL).
Both have insisted on the fact that the document from the Surveillance Committee is only a reference. The definitive version will be published on December, after having gathered the feedbacks of the interested parties, a meeting in Frankfurt, and an intervention by the President of the Surveillance Committee, Danièle Nouy at the European Parliament in November. Draghi and Visco had a meeting before gathering with the Ministers’ Committee of the Monetary Fund and before their press conferences.
Draghi stated: “There is the issue of NPLs and it must be addressed. We have published a document and we have asked feedbacks. It’s the duty of supervisors”. “We’re against fighting over principles – commented Visco – “We must take advantage of the economic growth to continue working on banks’ financial statements. If the economy is doing better, there will be less pressure on bad loans. For what concerns the guidelines from ECB, we’ll see the final result”. The Minister for Economy said that “with NPLs it takes transparency and gradualness”. The ECB President is always cautious when commenting banking matters, referring to the Surveillance Committee. Yesterday, Draghi clarified that there are also some other critical issues in the European banking system, such as the real estate credits of Spanish banks or the derivatives in the books of French banks, and that there are also being monitored by the Surveillance Committee.
In Italy, there is currently a heated debate regarding the management of NPLs since the Italian banking system is in the Eurozone one with the highest quantity of bad loans. Visco started by saying that Banca d’Italia participates in the ECB decisions, and stated that in Washington the matter wasn’t at the centre of the official meetings. Concerning the stocks of NPLs, he said, they’re back to the 2006-2007 levels, hence before the financial crisis. “Our evaluations – stated the Governor of Banca d’Italia – see a sharp reduction of the stock net of the devaluations. We’ve gone from 10.9% of the stock in 2015 and 8.4% in 2016 and we’ll probably reach below 8% by the end of the year. For 2018, the outlook is for an additional reduction till 7.5%, considering there are some operations already in place”. According to the Governor, the introduction of a calendar for the provisions as proposed by ECB “is a good idea, even if the devil is in details. It’s in the interest of banks to have it planned”.
Visco also reminded that the banking system consolidation process is still on and it will get great impulse by the concentration of 330 co-operative banks into three groups. The excessive number of banks is a European problem, he observed, as well as the number of branches: in France, the number of the branches per house is higher than in Italy. “Banks have underestimated the impact of technology on their services,” he said.
On his side, Draghi believed that the policy of the negative interest rates applied by the ECB on banks’ deposits in Frankfurt has given more advantages than disadvantages”, he noted that the main result has been the improvement of the recovery generated by the monetary strategy. “This is one of the best things that happened to the banks’ financial statements and it made possible provisions reductions and the improvement of assets quality”.
The minister Padoan highlighted how the public debt will register a significant reduction starting from next year, as long as the next Government will maintain the same policy. “The next administration will find better economic conditions”. Draghi said that the countries without margins on their statement must not take advantage of the low interest rates to implement expansion operations and increase the debt.
Source: Il Sole 24 Ore (by Alessandro Merli)
Translator: Cristina Ambrosi