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Presentation is on lending Policies of Banks in Italy, it gives a background of the banking scene in Italy and talks about the monetary framework of the Italian Banking System in compliance with Basel Norms I, II
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A presentation by Akash Paul Lakra
Semester VI
Roll 766, BBA(H) LLB(H)
National Law University, Jodhpur
Lending Policies of Banks in
Italy
Economic Indicators Commercial Bank Prime Lending Rate : 4.2 %
(31/ 1/ 2012)
Central Bank Discount Rate : 1.5 %
(31/1/2012)
1.75 %
(31/1/2010)
4.6 %
(31/1/2011)
European Central Bank's rate on the marginal lending facility
Data Source: Central Intelligence Agency, Publications, World Fact Book https://www.cia.gov/library/publications/the-world-factbook/geos/it.html
Major Banks in Italy Italy’s Top Five Banks
Central Bank of Italy
Banks and Lending Institutions
Short Term Lending Medium Term Lending Long Term Lending
These are basically divided into institutions of :-
Short Term Lending Institutions
Government Lending Institutions
Commercial Banks Lending to Large Firms
Banks of National Interest
These are basically comprised of six main Groups :-
Private Commercial Banks
National or Cooperative Banks
Specialized Credit Institutions
Medium and Long Term
Lending Institutions
Industry Agriculture Mortgages
Characterized by Specialization
Loan of Medium and Small Business
Nature of specialization determines the term of the loan.
Banking in Italy Historically, from 1998 until 2012, Italy Interest Rate averaged 2.6 % reaching an all-time high of 4.8 Percent in October of 2000 and a record low of 0.8 Percent in July of 2012.
Basel II
Italy was allowed a five-year transition period
Italian supervisory system compliance with 24 of the 30 BCPs in 2004.
Enough time was given to align credit practices, credit risk monitoring, and loan recovery arrangements with international practices
Strengthening of data systems and credit processes
Securitization of loans was monitored comprehensively by the Banca D’ Italia
Basel II
Italy was allowed a five-year transition period
Italian supervisory system compliance with 24 of the 30 BCPs in 2004.
Improvement of Credit Risk Management
Accurate Assessment the capital requirements of banks
Current Banking Scene
Banks' asset quality deteriorating
Bad loans at Italian banks, increase by 15.3% in just 3 months
Need for adequate provisions for rising bad loans– Banca D’ Italia
Rising non-performing loans have forced Italian banks to cut lending to businesses, crimping profits and exacerbating a credit crunch in the euro zone's
third largest economy.
Italy's banking sector remains negative - Moody's Corp
Data Source: Stephen Jewkes, “Italy banking outlook negative as asset quality slides: Moody's,” Reuters, 19 November, 2012 , available at http://www.reuters.com/article/2012/11/19/us-italy-banks-moodys-idUSBRE8AI19J20121119
Italy's two biggest banks Intesa Sanpaolo (ISP.MI) and UniCredit (CRDI.MI) set aside a combined 8.4 billion euros ($10.2 billion) in the first nine months of the
year in the face of rising bad loans.
Current Banking Scene Italy's banking sector remains negative - Moody's Corp
Data Source: Stephen Jewkes, “Italy banking outlook negative as asset quality slides: Moody's,” Reuters, 19 November, 2012 , available at http://www.reuters.com/article/2012/11/19/us-italy-banks-moodys-idUSBRE8AI19J20121119
Data Source: Scott Barber, ECB Lending to Italian and Spanish Banks, Thomson Reuters Datasteam, Bank of Italy, Bank of Spain, 14 June 2012
mainly consist of setting the key interest rates
Monetary Policy Framework The Euro system is responsible for the single monetary policy of the euro area
Data Source: Banca D’ Italia, “Home › Eurosystem and ESCB › Main activities › Monetary policy,” Banca D’ Italia Website, available at http://www.bancaditalia.it/eurosistema/attivita/polmon;internal&action=_setlanguage.action?LANGUAGE=en
maintain price stability
The ECB has quantified the definition of price stability as a year-on-year increase in the Harmonized Index of Consumer Prices (HICP) for the euro area of below but
close to 2% in the medium term
Increasing Transparency
Monetary Policy Framework ECB bases its monetary policy decisions on two complementary analytical
perspective
Data Source: European Central Bank, “Home > Monetary Policy > Strategy > Economic analysis,” European Central Bank Website, available at http://www.ecb.int/mopo/strategy/ecana/html/index.en.html
Economic analysis
Monetary Analysis
Assesses the short to medium-term determinants of price developments, its focus is on real activity and financial conditions in the economy and takes account of the fact that price developments over those horizons are influenced largely by the interplay of supply and demand in the goods, services and factor markets
Focuses on a longer-term horizon, It exploits the long-run link between money and prices and mainly serves as a means of cross-checking, from a medium to long-term perspective, the short to medium-term indications for monetary policy coming from the economic analysis
Basel III Basel III is expected to be implemented toward the end of 2013 or the start of
2014 in Italy
Minimum LCR Requirement
Steps up banks' capital and liquidity requirements
Gradually phased in beginning in January 2013
2015 2016 2017 2018 2019
Minimum LCR 60% 70% 80% 90% 100%
Conclusion Eurozone Crisis has affected the Banking Sector
very adversely
Rising bad debts is forcing the Italian Legislation to make stricter and adequate lending provisions
Basel III is expected to be implemented toward the end of 2013 or the start of 2014 in Italy which will Steps up banks' capital and liquidity requirements
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