Rome, February 19 - Loans to families and companies dropped by record amounts in January, Italy's banking association ABI reported Tuesday, adding that it expected the country's economy to contract even more than it previously forecast. According to ABI the value of total loans issued, 1.467 billion euros, represented a 2.5% drop on the December value and was largely the result of the continuing recession in Italy. Meanwhile, for the current year ABI researchers said their forecasts of a 0.6% contraction in the economy would likely be revised for the worse after a higher than expected contraction of 0.9% in the fourth quarter of 2012. On this basis, and unless the government takes any measures to stimulate growth, the economy could be on track to shrink by about 1%, ABI said. The banking association also warned of the increasing amount of potentially dud loans in the financial system - another result of the continuing poor economic climate in Italy - but added there was no cause for alarm, as the increase was "physiological" and "could be managed". According to ABI, the total value of bad loans reached a net value of some 64.3 billion euros at end 2012, representing about 3.3% of total bank lending, up from about 2.7% to the end of 2011. Meanwhile, ABI said that bank deposits continued to increase in January, up 6.8% on December, reaching some 1.2 trillion euros. The January growth rate marked an acceleration with respect to December's +6.2% reading. ABI said the increase in bank deposits is likely a result of consumers' preference for liquidity in the current recessionary climate.
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