Italian banks are in “trouble” because of their “large stock of bad loans” QNB said although it does not foresee the trouble “spilling over” to the wider global economy.
The share prices of Italian banks collapsed following the UK’s decision to leave the European Union (EU). They are now trading more than 50% below their value at the beginning of 2016, QNB said in an economic commentary. While Brexit could be partially blamed, as it is expected to trigger global monetary easing, which is typically bad for banks’ profitability, the problem runs a bit deeper. The balance sheet of Italian banks is loaded with bad loans. Attempts by the government to solve this problem by capitalising the banking system are running into legal hurdles imposed by new Euro Area rules.
“We expect Italy and the rest of the Euro Area to reach an agreement that is broadly consistent with rules. We do not foresee the trouble with Italian banks spilling over to the wider global economy,” QNB said.
Italian banks are in trouble as their main problem is the large stock of bad loans, QNB points out.