In some cases, the inspection became "a full-scope examination of the entire
operational activity of the group," the document said. It isn't clear which
banks are facing those reviews, which are continuing. The Bank of Italy has been calling publicly for banks to clamp down on
expenses, including executive pay, in order to thicken their capital buffers.
"For banks that will have to undertake more far-reaching adjustments, a
contribution should come from the sale of nonstrategic assets," according to the
Bank of Italy document.
Other banks might need to beef up their loan-loss provisions soon. The Bank
of Italy recently started a new round of on-site inspections of an additional 20
banks, according to people familiar with the process. Those exams are expected
to wrap up later this summer. Large Italian banks are trying to devise their own solutions. Some have been
in negotiations with hedge funds about selling troubled loans at steep
discounts, according to executives involved in the talks. With Italy's economy shrinking for two years, businesses and individuals are
falling behind or defaulting on their loans at an increasing clip. So-called
nonperforming loans have been marching higher for at least 27 consecutive
months. At the end of March, they totaled €249 billion, or 14.2% of the
industry's overall loans, according to Bank of Italy data. At the end of 2010,
the figure was €157 billion, or 8.9% of total loans.
Regulators and bank executives say they expect the situation to continue
worsening well into 2014, even if the Italian economy stabilizes later this
year.
The trend is saddling banks with losses and raising questions among
regulators, investors and even some industry executives about the adequacy of
their cushions to absorb such hits.
In the short term, it is likely to take a toll on the financial performances
of top Italian banks that will start reporting midyear results later this week.
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