U.S. Markets closed

Italian central bank says favours more bank mergers

ROME (Reuters) - Italian banks have no strong need to increase their capital but must restructure and boost efficiency and would be helped by mergers, central bank chief Ignazio Visco said on Wednesday.

In a keynote speech in Rome, Visco said the country's banks must rein in costs and make better use of technology in the services they offer.

"The process of restructuring and efficiency improvements could be helped by mergers that have a sound economic basis," Visco said.

Many analysts expect an upcoming asset quality review by the European Central Bank to trigger a new wave of consolidation among Italian banks, especially mid-sized ones, to follow a number of fusions just before the global financial crisis hit in 2008.

The governance structure of some banks, especially cooperative banks known in Italy as 'popolari', is seen by analysts as an obstacle to further mergers.

Visco also said it was crucial that Italian banks recover access to financial markets for funding, rather than rely on European central bank liquidity which "cannot constitute a permanent tool of bank financing."

Visco reiterated that suggestions that the Italian banking system was in need of a strong recapitalisation were unfounded.

He said banks' core Tier 1 ratio, a measure of bank capital strength, had risen to 10.9 percent on average from 7.1 percent before the global financial crisis.

For Italy's top five banks, the current average was higher, at 11.2 percent.

Visco said Italy's non-performing bank loans, the loans most at risk of default, amounted to 75 billion euros net of writedowns for the Italian banking system and were amply covered by guarantees.

Loan loss coverage stood in Italy at 39 percent, below a European average of 43 percent but this was mainly due, Visco said, to stricter classification criteria.

(Reporting by Gavin Jones, Editing by Lisa Jucca and Patrick Graham)