[ROME] Bank of Italy Governor Ignazio Visco said on Friday that the mountain of bad loans held by Italy's banks did not amount to an emergency for the banking system as a whole.
Italy's banks are saddled with some 360 billion euros (S$537 billion) of bad loans and their shares have been hit by heavy selling this year, especially in the wake of Britain's decision to leave the European Union at last month's referendum.
In a speech in Rome, Visco said a large part of the soured credit was held by banks which are in sound financial condition, and "it is wrong to speak of the problem of bad loans as an emergency for the whole banking system." Visco said the current situation was "full of risks" for financial stability, and a public "backstop" to support the banks was necessary and was not prohibited by European rules.
Italy has been in talks with the European Commission to devise a plan to recapitalise its lenders with public money, limiting the losses for bank investors which are required by EU rules. "We are confident of the possibility of success for a common commitment to overcome the current difficulties," Visco told a conference of Italian bankers.