Italy launches new bank for poor south

Thu Oct 15, 2009 9:22pm IST

* Lower tax rate on money targeted for south

* Post office to play a role

* Economist: Italy has history of failure in south

(Recasts, adds background, analyst comments, byline)

By Stefano Bernabei

ROME, Oct 15 (Reuters) - Italy approved creation of a new "Bank of the South" on Thursday, the latest effort to spur development of its poor and mafia-plagued Mezzogiorno region.

Economy Minister Giulio Tremonti said a southern-based network of cooperative banks would improve funding for small and mid-sized businesses in the region, where income is below the Italian average and joblessness is high.

Contributing banks can issue bonds for up to 6.75 billion euros ($10 billion), benefiting from a reduced tax rate of 5 percent as long as the money is used in the south.

"All European countries have regional banks. In the south, there are no banks that are properly southern-based," Tremonti, who first championed the idea in 2004, told a news conference.

Tremonti said banks that had been based in the south had been taken over by lenders based in northern Italy, the country's industrial and financial powerhouse.

He added that southern deposits were often used to fuel northern investment. Italy's postal service will play a role in the initiative, said the minister, who has accused lenders of failing to support businesses in the financial crisis.

"HISTORY OF FAILURES"

Tito Boeri, an economist at Milan's Bocconi University, said he doubted that the new bank would be good for the region. The key issue is reform of local governments that are often inefficient and sometimes corrupt, he said.

He said Italian governments have had a "history of failures" in developing the south, adding: "The real issue is that as long as the south has low productivity there will be no money going there.

"Money goes where it can be best used, in general."

An analyst said the regional bank was a new competitor that in theory could undercut banks by offering better conditions and cut into yields.

However, in practice the bulk of lending is in Italy's north and centre regions, where most banks are based.

"I think it's a minor issue" for most banks," said the analyst, who spoke on condition of anonymity.

Among southern banks taken over by northern peers, Banco di Sicilia is now part of UniCredit SpA (CRDI.MI: Quote, Profile, Research) and Naples' Banco di Napoli is a unit of Intesa Sanpaolo SpA (ISP.MI: Quote, Profile, Research).

(Additional reporting by Ian Simpson in Milan)

($1=.6702 Euro)