February 8, 2020 / 5:01 PM / 17 days ago

UPDATE 1-Italy says it opposes classing govt bonds as risky assets

(Adds BPER Banca CEO quotes, background)

By Andrea Mandala and Valentina Za

BRESCIA, Italy, Feb 8 (Reuters) - Italy will always oppose stripping government bonds of their risk-free status as a bank asset, unless the euro zone moves to create a new common “safe asset” for lenders to invest in, Economy Minister Roberto Gualtieri said.

A global regulatory debate over the possibility of forcing banks to set aside capital against government bond holdings, removing their current zero risk-weighting has yielded no results.

“There are no reasons in favour of making Europe the only place in the world to give up a liquid and risk-free asset,” Gualtieri told the annual Assiom-Forex conference.

“Until we start creating a true European safe asset ... we will always be against modifying the prudential treatment of government bonds” in banks’ balance-sheets.

Italy’s banks are large holders of the country’s sovereign debt, the world’s third-largest public debt pile. They have historically supported Rome’s funding needs at times of stress, picking up high-yielding bonds that help revenues but hurt their capital buffers when their value drops further.

Speaking at the Assiom-Forex conference, Bank of Italy Governor Ignazio Visco said banks in this respect played an important role as “contrarian investors.”

As Italy’s bond market stabilised after a period of turmoil, Italian banks have shed 40 billion euros ($44 billion) in government bonds since May, Visco said.

In December they held 313 billion euros in domestic government bonds, or 9.8% of their assets, down from a peak of 403 billion euros in 2015.

Core euro zone countries see a reduction of banks’ exposure to their own country’s debt as a condition to progress towards a single banking union in the bloc.

Germany’s finance minister in November proposed that EU law should ensure banks have a financial incentive not to accumulate too much debt of a single state.

Gualtieri has said in the past that Italy could be open to considering introducing such “concentration limits”.

The idea of concentration limits is also gaining traction among Italian bankers, and top lenders have already taken steps to limit their exposure to Rome’s debt.

Speaking on the sidelines of Saturday’s conference, Alessandro Vandelli, CEO of Italy’s sixth-largest bank BPER Banca, said that he was against limits being imposed from above but that diversification made sense.

He said domestic government bonds accounted for only a third of BPER’s financial asset portfolio.

“It’s a self-imposed limit we’ve set for our financial portfolio.”

Last week Mediobanca boss Alberto Nagel and Banco BPM head Giuseppe Castagna told a Reuters BreakingViews event that thresholds could be considered when government bonds held by a bank greatly exceeded its capital. ($1 = 0.9138 euros) (Additional reporting by Gianluca Semeraro in Milan; Editing by Francesca Landini and Hugh Lawson)

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