New Financial Services market report from Business Monitor International: "Italy Commercial Banking Report Q2 2012"

Boston, MA -- (ReleaseWire) -- 06/23/2012 --No Respite For Italian Banks BMI View: Although Italy's banks continue to muddle through, signs of a domestic economic slowdown and the ongoing eurozone sovereign debt crisis pose risks to both industry growth and stability. While a banking crisis is not on the cards for now, we warn that a failure by policymakers to stem the debt crisis and support growth pose significant risks. Latest data released by the Banca d'Italia, suggest that our negative outlook for the Italian banking sector is starting to play out (see our online service, September 12, 'At Risk From Eurozone Policy Inertia'). Since May, banking sector assets have been receding on a yearly basis, reaching a negative peak contraction of 4.2% in May. In September, total assets came in at EUR3.95tn, down by 0.2% year-onyear (y-o-y). Our negative outlook for Italian banks is mainly predicated on two factors: the expectation for poor real GDP growth in 2012, and a huge exposure to the eurozone sovereign debt crisis. These factors remain in place and have exacerbated since our last update. Italy's real GDP growth came in at -0.2% quarter-onquarter (q-o-q) in Q311. We expect the economy to experience negative growth in Q411 too, therefore entering technical recession. Furthermore, we currently forecast growth to fall into negative territory in Italy Commercial Banking Report Q1 2012 © Business Monitor International Ltd Page 28 2012, with the economy expected to contract by 1.4%, as EU-mandated fiscal austerity batters domestic demand. Italian banks hold large amounts of BOTs and BTPs (Italian government bonds), exposing the sector to a potential major credit event. As illustrated below, the financial institutions have attempted to reshuffle their balance sheets in recent months, moving away from bonds (mostly sovereign) and more towards consumer loans. While this would usually be welcomed as a positive development, indicating a strong conviction in the real economy, we believe that at the current juncture, we are observing a drop in bond holdings induced by a desire to reduce exposition to the sovereign debt crisis evolving in the eurozone. This is conversely a bearish signal that indicates how the Italian banking sector is increasingly trying to minimize its direct exposure to sovereign assets. This operation has been helped by the organisation of two 'BTP days', in which domestic consumers were allowed to purchase Italian government bonds from banks at a reduced rate. Nonetheless, Italian credit institutions remain fully exposed to the headwinds originating from the eurozone and with respect to Italian debt, and this weakness is not expected to abate significantly anytime soon. Dropping Client loans are still holding up well, according to the latest data. In September, outstanding client loans totalled EUR1.61tn, marking a 5.91% increase with respect to the same month of the previous year. However, we believe that a credit crunch will eventually hit the c

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