WASHINGTON, 12 Jul (ANA) - The fragile state of Italian banks in the fraught post-Brexit financial climate has been highlighted by the International Monetary Fund, in a stark warning that the eurozone’s third biggest economy will have suffered for almost two decades before it starts to recover the ground lost since the 2008 financial crash. Italian banks suffered fresh heavy losses on Monday as the European Union insisted that Matteo Renzi’s centre-left government abide by state-aid rules that limit Rome’s scope to provide help to banks burdened by the non-performing loans (NPLs) caused by economic stagnation. The IMF said Italy was “recovering gradually from a deep and protracted recession”, but said the healing process was likely to be “prolonged and subject to risks”. It used its article IV consultation – an annual economic and financial health check – to stress that Italy was vulnerable to a cocktail of threats that could have knock-on effects for the rest of Europe and the world. The IMF’s forecast says it will be the mid-2020s before Italy’s economy returns to its pre-2007 levels. During this period of slow recuperation, the country would grow relatively poorer compared with other eurozone countries, while its banks would continue to be heavily exposed to economic shocks. “Downside risks arise from delays in addressing bank asset quality, intensified global financial market volatility – including from Brexit, the global trade slowdown weighing on exports, and the refugee influx and security threats that could further complicate policymaking,” said the IMF. “If downside risks were to materialise, regional and global spillovers could be significant, given Italy’s systemic weight.” Britain’s vote to leave the European Union has led to investors focusing on the problems of the Italian banking sector, fearing that renewed turmoil in the eurozone will lead to lower growth, a fresh wave of bankruptcies, and an increase in NPLs. Unicredit, Italy’s biggest bank, has lost a third of its value since 23 June, and its shares fell by almost 4% on Monday. The IMF said: “With the economy turning around, non-performing loans appear to be stabilising at about 18% of loans, one of the highest in the eurozone.” These bad debts, it added, meant that profit margins in Italian banks were among the lowest in Europe and were also affecting their ability to lend.(ANA)

FA/ANA/12 July 2016-----