July 27, 2017

IMF published its staff report and selected issues report on the 2017 Article IV consultation with Italy. Directors noted that progress is underway to safeguard financial stability. They called for additional measures to enhance operational efficiency of banks and materially reduce nonperforming loans (NPLs). Directors highlighted that NPL reduction and restructuring strategies of banks should be ambitious and credible, aided by supervisory assessments.

The staff report highlights that against the backdrop of high NPLs and weak profitability, the authorities have been taking actions to stabilize the banking sector. This includes efforts to deal with weak banks, bank consolidation frameworks, and lowering the stock of NPLs. Moreover, capital ratios of significant banks improved slightly but remain notably below the European average. The common equity tier 1 ratio stood at 10.4% in the fourth quarter of 2016, about 3.7 percentage points below the average in a sample of large European banks compiled by EBA. Including the successful capital increase of EUR 13 billion in early 2017 by Unicredit, Italy’s largest bank, the ratio would stand at about 11.6%. The latest annual supervisory review resulted in additional capital requirements for a few other banks. The staff recommends that a credible and comprehensive policy package would include establishing ambitious targets with individual banks to reduce NPLs and improve insolvency and debt enforcement procedures; the policy package should also involve making timely and effective use of the resolution framework and encouraging bank rationalization and consolidation, accompanied by proactive supervision and better governance to raise profitability.

 

The selected issues report examines the fiscal and wage reforms in Italy and seeks to quantify the net benefits of a comprehensive reform package aimed at addressing Italy’s inter-related challenges. Italy is struggling with modest growth, high public debt, and a banking system burdened with high NPLs and weak profitability. The report also takes a look at the country's pension system, examining the impact of the transition from the old Defined Benefit system to a Notional Defined Contribution (NDC) Scheme and highlighting that the 2017 budget dilutes expected gains from past pension reforms. The pension system would benefit from separating the insurance and social protection/welfare functions. Although the NDC in the very long run is expected to reduce pension spending, by itself it is not sufficient to deal with Italy’s fiscal problems. The authorities project long-term pension spending to remain relatively subdued, supported by the implementation of the past pension reforms and a strong recovery in employment.

 

Related Links

Staff Report (PDF)

Selected Issues Report (PDF)

Keywords: Europe, Italy, Banking, Insurance, NPLs, Resolution Framework, Capital Adequacy, IMF

Related Articles
News

PRA Finalizes Reporting Amendments to Pillar 2 Liquidity Framework

PRA published the final Policy Statement PS13/19 on regulatory reporting amendments and clarifications to the Pillar 2 liquidity framework for banks in UK.

June 17, 2019 WebPage Regulatory News
News

IAIS Consults on Revisions to IAIS Supervisory Material

IAIS has launched a public consultation on revisions to the IAIS supervisory material.

June 14, 2019 WebPage Regulatory News
News

IMF Paper on Implementing Prudential Standards in Developing Economies

IMF published a working paper that provides practical guidance on how developing economies, including non-Basel Committee member countries, could incorporate international standards into their prudential framework.

June 14, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: Second Update for June 2019

EBA published answers to five questions under the Single Rulebook question and answer (Q&A) updates for this week.

June 14, 2019 WebPage Regulatory News
News

FSB Releases Update on Meeting of Regional Consultative Group for Asia

FSB published an update on the meeting of its Regional Consultative Group (RCG) for Asia.

June 14, 2019 WebPage Regulatory News
News

BoE, FCA, and MAS Announce Collaboration on Cyber Security

MAS and UK financial authorities (BoE and FCA) announced that they will work together to strengthen cyber security in their financial sectors.

June 13, 2019 WebPage Regulatory News
News

CBIRC Advisory Committee Holds Meeting, Discusses Regulatory Issues

The first meeting of the International Advisory Committee (IAC) of CBIRC was held in Shanghai from June 11 to 12, 2019.

June 13, 2019 WebPage Regulatory News
News

ECB and EIOPA Publish Common Minimum Standards for Data Revision in EU

ECB and EIOPA published the common minimum standards for supervisory and statistical reporting data by the undertakings in EU.

June 13, 2019 WebPage Regulatory News
News

IMF Reports on 2019 Article IV Consultation with Czech Republic

IMF published its staff report and selected issues report under the 2019 Article IV consultation with Czech Republic.

June 13, 2019 WebPage Regulatory News
News

APRA Response to Proposal on Revisions to Capital Framework for Banks

APRA published a paper in response to the first round of consultation on proposed changes to the capital framework for authorized deposit-taking institutions.

June 12, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3252