February 7, 2018 / 7:49 PM / 8 months ago

UPDATE 1-Banco BPM raises bad loan reduction target by 5 bln euros

(Adds details)

MILAN, Feb 7 (Reuters) - Italy’s third-largest bank Banco BPM has stepped up its target for shedding bad debts in an effort to lower them to around 11.5 percent of its total loans by the end of 2020.

Banco BPM, which was formed last year by the merger of Banco Popolare with Banca Popolare di Milano, held soured loans equivalent to 21.1 percent of total lending, before writedowns, at the end of 2017.

Under a plan agreed with the European Central Bank (ECB) to gain a green light for the merger in 2016, Banco BPM targeted a 17.9 percent soured loan ratio in 2019 after 8 billion euros ($9.8 billion) in disposals.

Banco BPM, which has already carried out sales worth 4.5 billion euros under the plan, now intends to sell an additional 5 billion euros in bad debts between this year and next.

The ECB has stepped up pressure on Italian banks to offload debts that turned sour during a harsh recession ended in 2014.

On Tuesday, Italy’s biggest retail bank Intesa Sanpaolo said it would halve its impaired loan burden to 6 percent under a new four-year plan to 2021.

Banco BPM CEO Giuseppe Castagna told analysts the bank now planned to sell 5.5 billion euros in bad debts by mid-2018, tapping a guarantee scheme provided by the Italian state to help disposals, and the remaining 3 billion euros by the end of 2019.

“We’re not going to wait until 2020,” he said.

To ease the sales, Banco BPM is planning to book fresh writedowns, bringing the book value of the loans closer to market prices.

In doing so it will take advantage of the new IFRS9 accounting rule which came into force in January and for a time allows lenders to avoid booking losses stemming from it in their income statement though capital would still be impacted.

Banco BPM said its core capital would be at 12.02 percent after the 1.75 percentage point IFRS9 hit.

The bank reported on Wednesday a 558 million euro net profit for 2017, compared with a 1.6 billion euro loss the previous year as a result of loan writedowns. ($1 = 0.8147 euros) (Reporting by Valentina Za; editing by Agnieszka Flak)

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