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Italy central bank says lenders must prepare for pickup in bad loans

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By Reuters

MILAN (Reuters) – Italian banks must be ready for when the current economic slowdown translates into a bigger proportion of loans turning sour, a senior Bank of Italy official said on Tuesday.

Deputy Governor Luigi Federico Signorini said in the text of a speech that the economic cycle was bound to have an impact on credit quality sooner or later.

“The reduction in the inflows of new soured loans cannot go on indefinitely,” he said, adding banks would not be able to continue to rely on falling loan-loss provisions to drive an improvement in profits.

He urged lenders to find specialised players to manage so-called ‘unlikely to pay loans’ if they lacked, and could not acquire, the very specific skills needed.

(Reporting by Valentina Za; Editing by Mark Bendeich)