Fitch: Italian Mutual Banks Would Benefit From Change
Broader financial sector reforms are under way to ensure that credit flows support the country's fragile economic recovery, but so far the BCCs have been moving slowly through self-reform. We believe the government could impose change on them through legislation, and that urgency is increasing. This view follows the passing of laws in 1Q15 forcing Italy's largest cooperative banks - the 'banche popolari' - to transform themselves into joint-stock companies, ending the 'one shareholder one vote system' which often resulted in self-interested lobbying, slowing down essential reform.
Tighter cohesion among the BCCs under the direct control of a joint-stock company structure would have the potential to generate benefits. Access to capital would improve because investors prefer more straightforward corporate structures, governance practices, weak at some of the smaller banks, could be strengthened, risk management systems could be harmonised and ICCREA Group's centralised services could be more effectively implemented throughout the BCC group, reducing costs.
This could help prevent BCC failures, which escalated when recession hit Italy. Since 2009, an increasing number of cooperative banks have been either forced into special administration regimes or into the arms of ICCREA Banca Sviluppo, the entity which manages distressed banks and identifies solutions for failed ones, generally through mergers. Greater integration and the introduction of a group support scheme would enable us to assign ratings to the entire BCC group.
BCCs, which have a similar voting structure to the banche popolari, operate nationwide, controlling 8% of total deposits. The around 370 banks operate loosely as a group under the common 'Banche di Credito Cooperativo' brand name, and many share risk and operational systems. But the sector lacks a cohesive support mechanism, in stark contrast to the well-established support schemes central to the German, French and Dutch mutual banking sectors.
Fitch assigns group ratings to several cooperative banking groups that benefit from mutual support schemes in other EU countries. The fragmented nature of the BCC sector makes this impossible. We do assign ratings to ICCREA Holding and its related entities (BBB/Negative). ICCREA acts as a central institution for the BCCs, representing the group before regulators, and provides treasury and risk management functions nationwide. Not all BCCs use ICCREA's services.
The BCC sector reported a common equity Tier 1 capital ratio of 16.4% at end-2014 (latest available figures), which compares well to the Italian bank average. But unreserved impaired loans represented a high 62% of core capital, reflecting low reserves held against impairments, which reached nearly 16% of total loans.
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