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BANKING

Italy’s BMPS worst performer in EU bank stress tests

Italy's Banca Monte dei Paschi di Siena came a distant last in EU bank stress test, as the world's oldest bank announced sweeping reforms in a bid to stay afloat.

Published: 30 July 2016 11:12 CEST
Italy's BMPS worst performer in EU bank stress tests
Some analysts fear that the bank's bad debts may trigger a banking crisis in Italy and eurozone turmoil. Photo: AFP

Under the European Banking Authority's economic shock scenario, BMPS would suffer a 14.23 percent plunge in its core capital ratio — a measure of stability — by 2018.

That would bring the ratio for BMPS, which is both the world's oldest bank and Italy's third largest, down to minus 2.23 percent — the only one of the 51 banks tested to end up in negative territory.

The announcement came shortly after BMPS's board announced a rescue plan for shifting the billions of euros in bad loans that have weighed down on the embattled lender, which was founded in 1472.

Some analysts fear that the bank's bad debts may trigger a banking crisis in Italy and eurozone turmoil.

Shares in BMPS, which has become the eurozone banking sector's problem child, had soared on the Milan stock exchange earlier Friday, boosted by a possible new lifeline tabled by a veteran Italian banker and Swiss giant UBS.

After days of discussion leading up to a 10-hour meeting on Friday, the BMPS board of directors announced a plan to offload €9.2 billion ($10.3 billion) of bad loans, or amounts owed to a creditor that are unlikely to be paid.

The plan aims to “reach a structural, definitive solution” for bad loans, said the bank's CEO Fabrizio Viola.

Even before the plan was finalised, BMPS's stock rose over 10 percent, as it was seen as a welcome alternative to drastic restructuring measures demanded by the European Central Bank.

It closed the day at just under €0.31, up 6.3 percent.

The ECB had told BMPS, Italy's third-biggest bank, this month that it must offload 9.6 billion euros of non-performing assets within two years.

The bank, working with US bank JP Morgan and Italy's Mediobanca, has submitted a plan to shift the bad loans with the help of the Atlante fund, created specifically to take on doubtful banking assets.

The plan also calls for a capital increase of five billion euros to boost capital reserves.

But late Thursday, BMPS said it had received an alternative proposal from UBS and Corrado Passera, a former chief executive of the Intesa Sanpaolo bank and ex-minister for economic development.

Meanwhile the second worst performer in the EBA tests — Allied Irish Banks — would see a ratio fall of 8.47 percent.

“The EBA's 2016 stress test shows the benefits of the capital strengthening done so far are reflected in the resilience of the EU banking sector to a severe shock,” said Andrea Enria, chair of the London-based EBA.

But he added: “This is not a clean bill of health”.

Deutsche Bank, Germany's top lender, would fall by 5.4 percent and Royal Bank of Scotland by 7.46 percent.

“We come out of the 2016 stress test stronger than in 2014, although this year's exercise was more demanding,” Deutsche Bank's chief executive John Cryan said.

“The stress test shows that the bank is well equipped for tough times,” he said.

The 51 banks tested account for 70 percent of the sector.

They showed an average core capital ratio of 13.2 percent in 2015. Under an adverse economic scenario this would fall to 9.4 percent by the end of 2018.

The sector would therefore remain above EU legal minimum levels in case of the shock being tested — an EU economic contraction of 1.2 percent in 2016 and 1.3 percent in 2017 followed by 0.7-percent growth in 2018.

The EBA said the scenario remained valid following Britain's vote last month to leave the European Union since its tests were with worse growth figures that the worst-case Brexit scenario.

“The results of EU-wide bank stress tests show that euro area banks improved their resilience,” the European Central Bank said in a statement.

“Overall supervisory capital expectations will remain broadly stable compared to 2015,” it added.

BANKING

Card over cash? Why Germany is seeing a new payment preference

Cash has long been king in Germany, with many smaller retailers refusing to join the rest of the world in adopting contactless payment systems. But card-based payments are on the rise, as recent stats about Girocard use reveal.

Published: 13 February 2024 12:31 CET
Card over cash? Why Germany is seeing a new payment preference

Germany has long been a very cash-based country, occasionally to the dismay of frustrated tourists at the Döner shop.

A few German phrases express the people’s love of physical money. There’s ‘only cash is true’ – Nur Bares ist Wahres. Or Bargeld lacht, literally meaning cash laughs, but used to imply that cash is what’s wanted, similar to ‘cash is king’ in English.

But the classic German preference for cash appears to be evolving, as the use of girocards is growing, even for small transactions.

How are girocards being used?

Girocard, an ATM and debit card service offered by German Banks, was designed to allow customers to use virtually all German ATMs and, increasingly, to make purchases at businesses.

READ ALSO: Ask an expert – Why is cash still so popular in Germany, and is it changing?

Last year, consumers in Germany used their Girocard more often than ever before for cashless payments. A total of €7.48 billion payment transactions with the plastic card were counted – 11.5 percent more than in the previous record year 2022, according to figures published by the Frankfurt-based institution Euro Card Systems.

Whether at the bakery, petrol station or supermarket, customers are increasingly pulling out their cards at the checkout, even for smaller amounts. As a result, the average amount paid with the Girocard fell from €42.34 to €40.69 within a year. 

The rise of card payments in Germany

Contactless payment, which is possible with girocards and credit cards that have an NFC chip, got a boost during the Covid pandemic, as retailers promoted it for hygiene reasons. 

But the use of card payments has continued to grow in Germany since then, boosted partly by the increasing use of girocards.

Promoting the use of girocards, some German banks have expanded their cards’ functions: Sparkassen, Volksbanken, or Raiffeisenbanken offer girocards for the digital wallet, for example.

Banks want to continue upgrading the payment card with further applications. For example, a project is being tested which would add an age verification function to girocards that would be useful when a customer is buying cigarettes.

On the retail side, it’s clear why the Girocard is preferred to other debit options.

“We see that debit cards from international providers cost up to four times more,” Ulrich Binnebößel, Head of the Payment Systems & Logistics Department at the German Retail Association (HDE) told DPA.

What’s the difference between the Girocard and other debit?

The Girocard is a strictly German phenomenon. It can be seen as the latest iteration of the EC card, which was created to consolidate payment systems following the unification of former East and West Germany.

In 1991 different debit card systems, including Eurocheque guarantee cards from former West Germany and Geldkarte ATMs from former East Germany, were unified into Eurocheque cards.

Then in 2001, the Eurocheque system was disbanded, but German banks continued to use the EC logo for “electronic cash’” cards, or EC cards. In 2007, the German Banking Industry Committee introduced Girocard as a common name for electronic cash and the German ATM network.

Girocards are only issued and accepted in Germany, so if you want to get one of your own, you’ll have to join a German bank, and shell out those notorious German banking fees.

READ ALSO: Why it’s almost impossible to find a free bank account in Germany

Alternatively, you can get by with internationally accepted debit cards provided by a bank in your home country, or otherwise by joining an app-based European banking service like N26. 

But be warned, without the Girocard in hand, at some smaller retailers you may be told, “Leider nur Bargeld oder EC-Karte.”

With reporting by DPA

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