MILAN, Jan 16 (Reuters): Many Italian banks are struggling to borrow on the private markets and want European Central Bank (ECB) help as they seek more than 55 billion euros ($63 billion) in funding this year.
Even after removing the threat of major collapses by bailing out some of its lenders, Italy's financial system is ill-equipped to support an economy at risk of slipping back into recession.
Italy's banks are still dealing with the bad debt left by the last downturn and another would risk new loans turning sour.
Political uncertainty has meant a spike in borrowing costs for Italian banks since an anti-austerity government took power last year, with only heavyweights UniCredit and Intesa Sanpaolo able to raise unsecured debt.
Bailed-out Monte dei Paschi said last week the ECB had warned it about the challenge of raising money this year, highlighting a pinch that was evident in the third quarter of 2018 when the Bank of Italy said 200 million euros more in senior debt expired than was issued.
"Net issuance levels are truly worrying," Banor Capital's Head of Fixed Income Francesco Castelli said.
Italian banks rely on some 240 billion euros of ultra cheap, longer-term funds borrowed from the ECB in 2016 and 2017, but that source of funding is now shut and without replacing so-called TLTRO funds Italian banks will see a drop in their Net Stable Funding Ratio (NSFR), a long-term liquidity measure monitored by regulators.
ECB policymakers have said they are considering a new type of multi-year loans to avoid a potential liquidity shock.
"We think there will be something akin to a new TLTRO offer that could help mitigate the increase in banks' cost of funding," Luca Manzoni, head of corporate at Banco BPM, Italy's third-largest bank, told a recent event.
A senior executive at another Italian bank said 2019 looked difficult and he too expects the ECB to step in.
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