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