June 6, 2018 / 6:02 PM / in a year

UBI warns of bank funding risks as new government keeps markets on edge

FILE PHOTO: UBI Banca Popolare Commercio & Industria logo is seen in Milan, Italy, February 28, 2016. REUTERS/Stefano Rellandini/File Photo

MILAN (Reuters) - The head of Italy’s fifth-largest lender UBI Banca (UBI.MI) warned of risks to bank funding if concerns over the country’s new government continue to keep markets on edge.

Italy’s new prime minister promised on Tuesday to bring radical change to the country as his anti-establishment government sought parliamentary backing, sending debt costs sharply higher.

Italian bonds and banking stocks have come under pressure in recent weeks as investors took fright at the spending plans of a coalition comprising the anti-establishment 5 Star Movement and the far-right League, which also vowed to row back on previous reforms.

“The election has resulted in a majority that brings a message of deep changes. It’s not my job to judge but it’s obvious that the markets’ first reaction has been one of concern,” UBI CEO Victor Massiah told reporters on the sidelines of a conference.

“This reaction is creating problems, we see that not just from the (bond yield) spread and the stock exchange, but also from what happens on the market for institutional funding, which is less in the spotlight,” he added.

“There is less talk about it, but it’s the biggest concern ... (funding) is crucial, it’s oxygen for the banks.”

Market sources have told Reuters that the wholesale funding market has frozen for Italian lenders and will take a while to re-open, with weaker issuers expected to be shut out for longer from institutional funding.

Analysts say this is no immediate threat, as banks have ample liquidity. Massiah also said the situation would only become problematic if it persisted over time.

“I don’t want to send a terror message, there is no problem at present, I’m only saying that finding a solution to address market concerns can’t take forever.”

Reporting by Andrea Mandala; Writing by Valentina Za; Editing by Mark Potter

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