Italian Bad Loans Surge To Highest Since 2000, Foreign Deposits Plunge

Maybe we can call today bad loan day: earlier today the Bank of Spain announced that Spanish bank loans, already rising in a rather disturbing diagonal fashion, have surpassed 8% of total for the first time since 1994. Now it is Italy's turn, where we find courtesy of ABI, that gross non-performing loans, aka bad-debt, has just reached €107.6 billion, or 6.3% of total, and the highest since 2000, not to mention a doubling of the 3.0% in June 2008. It gets worse: as Reuters reports, while domestic deposits in February rose by a heartening 1.6% in February, it is foreign deposits that confirm that not all is well with the country's financial system, declining a whopping 16% in February y/y, and the 8th consecutive monthly decline, a chart which resembles that of Greek deposit outflows. The reason why Italy, like all the other peripherals, is now a ward of the ECB? Simple: "Net funding from abroad stood at 182 billion euros, down 32.5 percent year-on-year." And if there is no external money, the Central Bank will need to save.

More from Reuters:

With the Italian economy mired in recession, gross non-performing loans rose 16.5 percent to 107.6 billion euros in February.


Credit quality deterioration was marked compared to the levels seen before the start of the financial crisis, ABI said, with bad loans as a percentage of loans to the private sector more than doubling to 6.3 percent in February from 3 percent in June 2008.


The growth in the overall volume of loans to the private sector stood at 0.9 percent in March, little changed from the month before, a sign credit expansion remains sluggish despite the ECB cash flood.

This may not even be the worst news: reminding everyone that in a deleveraging environment incremental cash can only come from retained earnings (yes, we jest), or asset sales, the IMF told the market that European banks "could be forced to sell as much as $3.8 trillion in assets through 2013 and curb lending if governments fall short of their pledges to stem the sovereign debt crisis or face a shock their firewall can’t contain, the International Monetary Fund said." Of course, for every seller there should be a buyer. And there will be. When the prices plunge.

From Bloomberg:

In a study of 58 banks including BNP Paribas SA (BNP) and Deutsche Bank AG (DBK), the IMF forecast that under such circumstances, gross domestic product in the 17-country euro region would be 1.4 percent lower than now expected after two years. Even under its baseline scenario, the IMF sees banks’ combined balance sheets possibly shrinking by as much as $2.6 trillion.


“So far, deleveraging has occurred predominantly through buttressing capital positions and reducing non-core activities, leaving the impact on the rest of the world manageable,” the IMF said in its Global Financial Stability Report released today. “It is essential to continue to avoid a synchronized, large-scale, and aggressive trimming of balance sheets that could do serious damage to asset prices, credit supply, and economic activity in Europe and beyond.”


Banks in the sample studied by the IMF reduced assets by almost $580 billion in the last quarter of 2011, it said.


Governments should complete and extend the measures already agreed upon to reassure investors if they want to limit the impact of banks’ deleveraging, the IMF recommended. That includes continuing to reduce budget deficits while supporting demand as much as possible, restructuring banks and having the region’s rescue funds inject capital directly into them, it said.


“For an effective monetary union, deeper integration is required,” the IMF said. “Fiscal arrangements will need to be redesigned to accomplish ex ante fiscal risk-sharing,” without which “countries will continue to face very different financing conditions and remain prone to having liquidity crises turn into solvency concerns.”

But, but, Mario Monti told us everything was fixed? Surely the ex-Goldmanite was not joking...