Italian Bank Profit, Asset Quality Hurt by Virus, Moody’s Says

(Bloomberg) --

Profitability and asset quality will come under pressure at Italian banks as restrictions imposed to contain the coronavirus outbreak slow down business activity, according to Moody’s Investors Service.

“Deteriorating economic conditions” may cause non-performing loans to rise, Moody said in a note on Thursday. Earnings will be hit by weaker lending activity, fewer fee-generating transactions and a higher cost of credit, it said.

The coronavirus outbreak threatens to undo years of painful restructuring at Italian banks as the government imposes measures that may cause a prolonged shutdown of businesses. Italy ordered virtually all shops in the country to close after extending restrictions originally imposed on some northern regions to the whole nation.

To make matters worse, “the current difficult financial market conditions will likely force banks to put their funding programs temporarily on hold, at least in part,” according to the ratings agency. Moody’s expects the European Central Bank and the Italian government will take emergency measures to support banks’ liquidity and funding, limiting the overall impact.

--With assistance from Karl Maier.

To contact the reporter on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Ross Larsen, Vernon Wessels

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