IMF Publishes Reports on the 2017 Article IV Consultation with Italy
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
Keywords: Europe, Italy, Banking, Insurance, NPLs, Resolution Framework, Capital Adequacy, IMF
Previous Article
EBA Responds to the EC Consultation on FintechRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
