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The International Monetary Fund on Tuesday said that Italy’s finance system remains stable, but remained at risk from continuing weakness in the economy.
“The Italian finance system has shown remarkable resilience in the face of a severe and prolonged recession at home and a major crisis in Europe,” the IMF said. The banking system has a strong “capital cushion.” But the system is “not immune” from risks, particularly in the link between the financial sector and the sovereign sector, the IMF said.
“The recession is reflected in low bank profitability and deteriorating loan quality, while the coverage of non-performing loans provisions and collateral has declined,” the IMF said.
Banks with large holdings of sovereign securities are exposed to losses. “The crisis in Europe has not ended,” the IMF said.
The IMF evaluation was awaited with particular interest. The political situation in Italy remains unclear after parliamentary elections failed to produce a clear majority. Expectations persist that the rating agency Moody’s could once slash Italy’s sovereign credit rating.
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