[ROME] The European Central Bank may push Italian banks to shrink lending by asking those it sees as riskier to further boost their capital ratios, a senior official at national banking association ABI said.
Similar requests feed uncertainty because capital requirements keep changing and the criteria being used are not entirely clear, ABI Director General Giovanni Sabatini told Reuters in an interview on Friday. "Faced with uncertain capital requirements that appear to never be enough, and given current market conditions and weak profitability, banks may decide to further cut lending," he said.
Sabatini's comments come after Monte dei Paschi di Siena said on Friday the ECB had asked Italy's third-largest bank to raise its core capital level to 14.3 per cent.
That compares to a regulatory requirement of 7 per cent under so-called Basel III banking rules, and a 12.8 per cent Common Equity Tier 1 level Monte Paschi had at the end of September.
The ECB made its request to Monte dei Paschi and other Italian lenders as part of its new role as single supervisor, which it took on in November after completing a yearlong health check of the banking sector.
Sabatini said that in supervising euro zone banks the ECB appeared to pay more attention to risks linked to souring loans than to elements such as leverage or derivatives.
Such a focus penalises Italian banks that have a traditional business model centred on lending to businesses, he said.
Il Sole 24 Ore daily reported on Friday the ECB decided to set specific capital requirements for individual banks which in the case of most Italian lenders will be much higher than those set by Basel III rules.
The ECB sent letters to the euro zone banks it directly supervises where it outlined concerns and potential consequences based on the results of the yearlong review in October, banking sources said, but not all have been told to raise their capital levels.
Monte dei Paschi said discussions with the regulator were ongoing and the request was preliminary and subject to changes.