IMF urged Italy to reform financial sector

The International Monetary Fund (IMF) urged Italy for actions against concerns about the participation of retail investors in banks rescue. The international financial organization noted that quite a large amount of non-performing loans and slow legal processes are affecting the bank balance sheets. The reforms in the financial industry are critical to strengthening the financial stability and support the recovery of the Italian economy. IMF believes that the share of bad loans appears to have stabilized at around 18%.

According to the IMF, the concerns about the participation of retail investors in banks rescue, should be treated carefully.

Negotiations between Italy and the European Commission to recapitalize Banca Monte dei Paschi di Siena SpA and other banks hit trouble along doubts whether creditors should bear potential losses, if are used taxpayers’ money. The rules, which came this year, require bondholders and shareholders to absorb losses in failing banks in case of a rescue – a process called bail-in.

Italy prefers protective recapitalize under the terms of EU rules for restructuring banks that allow governments to support their vaults, they appear committed capital hole in stress tests comment on anonymous persons. The Italian authorities are trying to support the financial system, which weigh bad loans to nearly 360 billion EUR, amid growing pressure from the European Central Bank to Italian banks to clean up their balance sheets and deal with non-performing loans that undermine lending.

The IMF also calls for measures including more intensive use of extra-judicial mechanisms for restructuring debt, tighter supervision and systematic evaluation of the quality of Italian banks that are not subject to examination by the ECB.

Italy’s economic recovery will likely be lengthy and subject to risks, the IMF expects growth of 1.1% this year and 1.3% in 2017. According to the IMF, the public debt amounts to 133% of GDP, which is level that limited fiscal scope for responding to shocks. The debt dynamics are expected to decline only gradually in coming years and remain vulnerable to shocks, according to the IMF. The institution calls on the authorities to act more quickly with reforms to stimulate growth by giving greater priority to the smaller and more efficient spending, taxation, including broadening the tax base and the introduction of modern property tax.

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