After months of speculation over the health of Italy’s banking sector, another Italian lender is in the spotlight after the European Central Bank (ECB) demanded Banca Carige to see new capital plans as it tries to overcome a management crisis.
The Genoa-based bank Banca Carige said on Sunday that the ECB has requested to see how the bank will meet minimum capital thresholds amid an ongoing management crisis. The ECB has also said that such capital plans can be submitted later, if the lender decides to merge with another institution. Banca Carige has lost its chairman and deputy chairman in recent weeks, alongside two board members, over disagreements with the bank’s chief executive.
This crisis adds up to the pile of problems in the Italian banking system, where crisis-legacy issues remain, with one of the biggest problems being a build-up of non-performing loans.
Veneto Banca, Banca Popolare di Vicenza and Monte dei Paschi have all made headlines in the last year for requiring help from the Italian government to avoid a wider collapse. The former two received a cash buffer of 4.8 billion euros ($5.63 billion) and state guarantees of 12 billion euros ($14.08 billion); whereas the latter received a cash injection of up to 6.6 billion euros ($7.4 billion).
Analysts argue that the several attempts to rescue Italian banks show that the mechanisms used to prop-up banking institutions, like those in Italy, are not sufficient – and could ultimately put the entire European system at risk.
The various legacy issues, such as bad loans, are not solely an Italian problem. Across Europe, banks have had to work on their structural problems. However, there is one clear area that still demands action – profitability.
Central banks have lowered interest rates in the wake of the sovereign debt crisis to boost lending and ultimately the economy. Though they are now slightly increasing those rates, the prospects are that they will do so gradually, meaning that the prolonged period of low rates will remain for some time. As a result, banks won’t be able to charge significantly much more for their loans, dampening their profits.
Furthermore, there are also new political and economic concerns that could hit European banks.
Amid the start of a new earnings season for European banks Tuesday, Goldman Sachs said in a note that this will be “a muted quarter with European banks underperforming US peers.”
According to Goldman Sachs, European banks could see a “modest year-on-year decline” in revenues of about 4 percent. In comparison, year-on-year revenues are expected to jump 9 percent in the US.