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Italy's Creval aims to spin off bad loans, triple net profit by 2021

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MILAN (Reuters) – Italian mid-sized lender Creval said on Tuesday it would spin off its bad debts into a separate unit and reduce its exposure to domestic government bonds under a new plan seeking to triple net profit in the next three years.

The bank expects to roughly halve its gross soured loan burden to below 6.5% of total lending in 2023 from 11.4% in March, by selling a further 800 million euros (£717 million) in problem loans following disposals of around 4 billion euros since 2016.

Following in the footsteps of bigger rival UniCredit, Creval said it would spin off 1.9 billion euros in bad debts into a dedicated unit and halve its portfolio of securities, more than two thirds of which are domestic government bonds, during the five-year plan period.

Under new CEO Luigi Lovaglio, Creval said cost cuts and additional revenues would allow it to reach a net profit of 93 million euros in 2021, compared with 32 million euros last year.

Lovaglio, who made his name in the banking industry as the head of UniCredit’s former Polish unit Bank Pekao, was appointed at the end of February as part of a boardroom shake-up.

Crippled like many Italian lenders by a deep recession that turned sour almost a fifth of all banking loans, Creval raised 700 million euros in capital last year – or nearly eight times its then market value – to be able to write down bad loans and sell them off.

Shareholders bought new shares at 10 euro cents each, almost double the current price of 5.8 cents. At 0702 GMT shares in Creval were up 2.8 percent.

Under the new plan, the lender aims to return to paying a dividend on 2020 earnings with a pay-out ratio of more than 50%.

The bank, based in the Alpine Valtelline area north of Milan, said it would keep its core capital above 14% of assets both in 2021 and 2023, compared with 14% at the end of March.

(Reporting by Andrea Mandala; Editing by Valentina Za and Mark Potter)

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