The IMF’s annual report has highlighted the fragile state of Italy’s banks, which have been burdened by the non-performing loans (NPLs) caused by economic stagnation.
Italy’s banking sector, weighed down by significant debts, is in need of a sufficient cash injection. However, the situation has been overshadowed by government debts which are now second only to those of Greece. Consequently the Italian economy is predicted to grow less than one percent this year, compared with an earlier estimate of 1.1 percent.
The fund’s report said Italy was “recovering gradually from a deep and protracted recession”, but the recovery process was likely to be “prolonged and subject to risks”.
According to the IMF: “Downside risks arise from delays in addressing bank asset quality, intensified global financial market volatility – including from Brexit, the global trade slowdown weighing on exports, and the refugee influx and security threats that could further down complicate policymaking.”
Italy’s banking sector, weighed down by significant debts, is in need of a sufficient cash injection
Europe in trouble
The eurozone’s third largest economy suffered fresh losses on Monday as the EU insisted that Matteo Renzi’s government abide by the state aid rules that limit Rome’s scope to provide help to the country’s banks.
The IMF also said Italy’s capital ratios were below the eurozone average; it noted that despite further measures imposed on specific banks, concerns about NPLs and weak profitability in a period of low interest rates were still present. Italian banks, the report said, had “come under intense market pressure, losing over 40 percent of their market value this year”.
Last week, in light of financial uncertainty following Brexit, the IMF cut its growth forecast for the eurozone as a whole because of the expected impact of the UK leaving the EU. It now expects the eurozone’s economy to grow by 1.6 percent this year and 1.4 percent in 2017, when prior the EU referendum it had predicted growth of 1.7 percent for both years.