After two years of growth i private loans will decrease: a decline of 3,2% in 2022 and 1,1% in 2023 is forecast. mortgage application it will suffer a setback due to the increase in inflation which drives up interest rates and which will have consequences on the credit market and on real estate sales. It is the photograph of the Italian credit situation taken by the EY European Bank Lending Economic Forecast 2022, the analysis aimed at analyzing the evolution of loans to the private sector and predicting their trends.
In the last two years there has been an increase in loans to the Italian private sector (grown by 3,9% in 2020 and 1,3% in 2021), which is "however in a slowdown, due to the increase in the inflation and geopolitical uncertainty. Bank lending growth is expected to decelerate further in 2023 to 1,1%, before reversing and recovering to 1,7% in 2024 and 2,4% in 2025, it said. Stephen the Baptist, Italy Financial Services Market Leader of EY.
However, during the most difficult years of the pandemic, banks in the main European markets remained "in a position of capital strength thanks to the support of various government incentives, 750 billion euros in essential financial lines were lent to businesses and households", underlined Battista. “In this context, the economic outlook for the Italian banking sector is cautiously optimistic, having demonstrated good financial stability and resilience. A certain caution is required in the light of the first signs of uncertainty due to the geopolitical situation and inflation,” he added.
Reason why according to Battista "the financial institutions and the political ruling class must continue to collaborate to find the appropriate solutions in order to manage any problems deriving from the conflict in Ukraine that could impact on the economic system”.
War and price increases will weigh on mortgages and loans to private individuals
The Italian economy is also facing the increase in the prices of energy and raw materials, with the consequent risks of interruption of the supply chain of companies which will weigh on the demand for mortgages and loans to individuals, with a possible general reduction in consumption and investment capacity. In 2020, business loans, supported by government guarantees, grew by 5,8% (against -7% in 2019). This is the first year of growth in business credit since 2011. Overall, business loans are expected to grow 2,9% this year, but only 0,7% in 2023. mortgage loans delivered a surprisingly solid performance during the pandemic, posting +2,1% in 2020 and +4,7% in 2021 (the latter the highest figure in the last 11 years), benefiting from rising house prices, extremely low interest rates, the spread of hybrid work and the accumulation of savings during the lockdown.
Home prices continue to rise as do rates
However, the current outlook is less favourable. EY sees a slowdown in mortgage growth as home prices continue to rise and interest rates look set to rise. According to forecasts, mortgage growth will slow down to 2,9% in 2022 and to 1,2% in 2023. Even in the face of the possible worsening of economic prospects, the improvement in household and corporate balance sheets should prevent the dramatic increase in non-performing loans which occurred with the European sovereign debt crisis. At the beginning of 2021, 14% of loans benefited from moratoriums and 18% of loans to non-financial corporations were fully or partially covered by the state guarantee.
All this has led to a decline in NPLs from 6,4% of the total in 2019 to 4,4% in 2020 and 3,3% in 2021, the lowest figure since 2005. The cessation of the support and moratoriums will lead to an increase in the percentage of non-performing loans to 3,9% this year and 4,1% in 2023. “The combination of a possible stagflation, the negative impacts on the costs and revenues of companies - exposed to the countries involved in the conflict - and the tension on the financial markets could increase the risk coefficient of the banks' assets, with growth in the levels of absorbed capital, higher write-downs and lower intermediation margin”, commented Battista. However, "the Italian economic-financial system appears capable of withstanding the repercussions of a possible crisis, thanks to the general stability and solidity of financial intermediaries, private savings, the ability of companies to stay on international markets and the use of funds of the Pnrr,” concluded the leaders of EY.
