Bank of Italy says closely monitoring some small vulnerable banks

ROME, Oct 18 (Reuters) – The Bank of Italy is closely monitoring some small Italian banks in a vulnerable condition and has discussed the situation with the government, outgoing governor Ignazio Visco said on Wednesday.

“There are still situations of weakness and vulnerability in our banking sector,” Visco said in a speech at a meeting of the Italian banking lobby ABI, referring to “the so-called less significant banks”.

Higher interest rates have helped banks book record profits from loans to clients while interest on deposits has lagged. Going forward, however, the squeeze on borrowers threatens to diminish the demand for loans.

“Overall, the main indicators of the banks are at satisfactory levels, but that does not mean that profitability – I don’t want to talk about extra profits – will be maintained over time,” Visco said.

“There will be consequences for credit quality. We cannot foresee a return to the risks we faced a decade ago, but we must be careful, we need prudence: reserves, provisions, these are the watchwords,” he added.

Photo: Bank of Italy Governor Ignazio Visco. EPA-EFE/FRANCK ROBICHON