The ECB's rate hike sends the country into the red Bank of Italy. But if it is true that "common misfortune is half joy, it must be underlined that the losses - widely expected precisely due to the tightening of monetary policy by the Eurotower - last year were common to most of the monetary institutions in the euro area, Including the European Central Bank.
Bank of Italy: gross loss of 2023 billion in 7
Bankitalia closed 2023 with one gross loss of 7 billion due to the change in direction of the ECB's monetary policy aimed at containing inflation. However, thanks to the use of the provision for general risks and of own resources which absorbed the loss, the year ended with a profit of 815 million euros. The next budget is also expected to be red. Return to profit in 2025.
“Based on current monetary policy decisions and expectations on the evolution of interest rates, 2025 would instead mark a return to profit” stated the Governor of the Bank of Italy Fabio Panetta in the assembly. The “red” in the accounts before using the risk fund “is common to other central banks of the Eurosystem" he underlined, adding that "the ECB's rate hike has led to a increase in the cost of liabilities balance sheet (especially bank deposits) against which there was no increase in the corresponding return on monetary policy activities". A gross loss is nothing new for National, the last one was recorded in the early 2000s.
The gross 'red' in the Bank of Italy's balance sheet, Panetta further observed, as well as the worsening of the interest margin for 11,4 billion, was affected by the decline, for 3,5 billion, in the net result of the redistribution of monetary income, also a consequence of the monetary restriction implemented in the last two years". Bank of Italy, however, "can absorb this loss thanks to the capital strengthening policy it has followed in the past, inspired by principles of prudence. The capital funds accumulated over the years to deal with the possible materialisation of risks are today largely sufficient to cover both the loss for 2023 and that estimated for 2024".
Panetta: “Thanks to the risk fund profit of 0,8 billion”
The general risk fund, Panetta said, is used to 5,6 billion (another 30 remain in the fund). “Taking into account the positive contribution of 2,3 billion deriving from tax recovery of the gross loss - which will allow you to pay lower taxes in the future - the amount released allows you to close the financial year with a positive net result of 0,8 billion". Panetta added that the Bank estimates that the level of risk coverage remains adequate in a medium-term perspective. In fact, in 2023 the risks have reduced and will decrease further in the future due to the downsizing of the balance sheet.
Panetta: over 21 billion to the State in 5 years
However, the use of the risk fund allowed us to close with a profit of 815 million. This entails, explained the Governor, a profit for the State of 615 million and a dividend to participants (i.e. credit institutions, financial institutions and pension funds) of 200 million which is integrated with another 140 million set aside in recent years. In 2022 the amount "turned over" to the State, between profit and taxes, was 3 billion euros.
To the State, recalls Panetta, in the last five years the Bank paid profits of 21,62 billion as well as 4 billion in taxes.
Panetta: “Forward with rationalization and cost cutting”
The Bank of Italy will continue this year with a "rationalization of structures and processes” seizing “the opportunities offered by digitalisation”, said Panetta, explaining that the objective is to seek “efficiency” and keeping “cost dynamics constantly under control”. The Governor clarified that Via Nazionale will maintain its current structure and there should therefore be no new plans branch closures, but "an organizational solution is being adopted which, through the collaboration of all the necessary skills, will be able to contribute to carrying out the required activities in an agile and flexible way"
Panetta on rates: “The conditions for monetary easing are being created”
In his speech Panetta briefly referred to future decisions on interest rates by the European Central Bank, reiterating that "the conditions to initiate monetary easing".
"The global economy continues to be weak. The stagnation of international trade and the uncertainty raised by geopolitical tensions weigh on economic activity,” he continued. “The restrictive monetary policy of the European Central Bank is squeezing demand and contributing, together with the fall in energy prices, to the rapid decrease in inflation. The risks to price stability have been reduced – Panetta further observed – and the conditions are being created to start monetary easing”.
