€360bn of Italian bank loans are estimated to be “non-performing”by Tony Yates / July 13, 2016 / Leave a comment
Roughly €360bn of Italian bank loans (equal to about a fifth of annual GDP) are estimated to be “non-performing,” which means that borrowers are in breach of their original terms, either behind on interest payments or paying back the loan itself. Since the UK’s Brexit vote on 23rd June, shares in Italian banks have fallen by about a third. That unexpected vote led to a surge in distaste for risky assets, and Italian bank assets were clearly judged to be amongst the riskiest.
The non-performing assets of Italian banks are not the casino-like investments that we now see brought down other banks across Europe and the US in the 2008 financial crisis. They are, seemingly, regular loans to small and medium enterprises. The difficulties were not, therefore, caused by reckless banking innovation as happened in the UK.
Instead they are a result of the effects of slower than hoped for growth in the Italian economy over many years; a fragmented industrial structure (there are 600 independent lenders in the country’s banking sector); and the complex links between banks and local politics, which prevented central government from acting earlier.