Two Italy Banks Provide Inadequate Data on Loans During ECB Test

Feb 17, 2014 7:12 am ET

Feb. 17 (Bloomberg) -- Two Italian banks submitted low- quality data on their loan books to the Bank of Italy as European regulators began reviewing the assets of the continent’s lenders, the Bank of Italy said.

Information provided by another three of the 15 Italian banks in the European Central Bank’s review only just met quality standards, the Bank of Italy said in a Feb. 10 document distributed to banks and obtained by Bloomberg. Four of the lenders failed in terms of timeliness, it said without identifying them. A Bank of Italy official declined to comment.

“Conservative adjustments will likely be applied to account for low quality/not fully reliable information provided,” the Italian central bank said in the 40-page document, which hasn’t been made public. The ECB had set a deadline for submitting the data of Dec. 31.

The ECB is working with local regulators in a yearlong asset quality review of the loan and trading books of 128 of the euro region’s largest lenders. Banks that fail will need to raise capital, seek mergers or be wound down. Europe’s political leaders asked the Frankfurt-based ECB to supervise the banks starting this November, to shore up confidence in an industry hurt by a swathe of taxpayer-funded bailouts.

The Bank of Italy document, entitled AQR Exercise Phase 2, prepares banks for the second phase of the review starting today. It analyzed data already submitted by lenders in the review’s first phase.

Auditing Teams

About 23 auditors are expected at each of Italy’s two largest banks UniCredit SpA and Intesa Sanpaolo SpA to start inspections over the coming weeks, the Bank of Italy said in the document. The 10 smallest of the 15 Italian lenders in the ECB review will get 12 auditors each, it said.

Bayerische Landesbank, a German state-run lender, is expecting about 40 auditors to arrive for inspections today, Chief Executive Officer Gerd Haeusler said last week.

Italian banks Banca Monte dei Paschi di Siena SpA, Credito Valtellinese Scarl and Banca Carige SpA are among Europe’s lenders most at risk of failing the ECB review and later stress test, Keefe, Bruyette & Woods Inc., which offers investment- banking services, said in a report last month. Spokesmen for two of the companies declined to comment on the report last week. A spokeswoman for Valtellinese didn’t respond to a call and e- mail.

The country’s banks face a “manageable” capital deficit of as much as 15 billion euros ($20.6 billion), Italian banking association general manager Giovanni Sabatini said in an interview this month.

Among the aims of ECB auditors is to assess whether banks provide accurate data on risky lending and whether they set aside adequate capital for such lending.

The ECB’s review is due to end by October. It has set banks a minimum capital requirement to pass the asset quality review of 8 percent of assets weighted for risk.

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--Editors: Mark Bentley, Jon Menon