“The Italian economy is still in a difficult transition. Successfully overcoming it requires everyone's commitment and the banking system must play its part. There can be no lasting recovery without sufficient financial support for businesses”. This was stated by the governor of the Bank of Italy, Ignazio Visco, speaking at the annual meeting of the Abi.
The contraction in loans to businesses "accelerated in the first half of this year, exceeding 5% on an annual basis in the three months ending in May – continued the Governor -. The unfavorable cyclical phase compresses the demand for credit and accentuates the difficulties of debtors in repaying loans: in the first quarter the non-performing rate of corporate loans stood at around 4,5%, a high value in historical comparison. Other non-performing loans are also booming”.
Furthermore, the tensions in the credit market, according to Visco, “are expected to continue in the coming months. The increase in risks weighs on the supply policies of the banks, slowing down the disbursement of loans and raising their cost. Signals to this effect come from surveys conducted both at banks and at businesses. Past evidence indicates that the deterioration in credit quality tends to continue after the onset of the cyclical recovery”.
With the recovery of the economy, however, banks will be able to go back to investing less in government bonds and supporting businesses and households more: “Exposure to the public sector has increased significantly since the beginning of last year – underlined Visco -. The high risk level of credit and the objective of expanding the collateral usable for recourse to refinancing with the central bank, as well as the high yields on government bonds contributed to this. The recovery of the economy and the return to normal conditions in the credit market will make it possible to bring fund allocation policies back in line with the pre-crisis experience and to expand credit support to households and businesses”.
ANALYSTS FEARS NOT ALWAYS MOTIVATED
According to Visco, “the fears of international analysts about the solidity of Italian banks' balance sheets should not be underestimated, even if they are not always well motivated. Company policies aimed at containing costs, improving risk management and expanding the capital base of banks must continue". The news of a new one comes from the last few hours downgrade on Italy by Standard & Poor's.
GDP 2013 ALMOST -2%
The Italian GDP in 2013 will decrease by almost 2%, with a moderate recovery from the end of the year and weak growth in 2014, but higher than 0,5%. “In our forecasts – said the governor – which will be published in the economic bulletin in a week's time, the contraction of the product in the current year would be close to two percentage points. Economic activity should expand again at a moderate pace from the end of the year, with overall growth exceeding half a percentage point in 2014”.
In the first half of 2013, added Visco, “Italy's GDP decreased again, largely due to the fall in domestic demand. In the short term, internal demand will have to find support in the timely execution of the payment of commercial debts of public administrations”.
BANKS CONTINUE TO STRENGTHEN THEIR ASSETS
The capital strengthening achieved by the banking system over the last few years “has been significant – noted the governor -. The ability to withstand adverse shocks is improved. The high-quality capital increase needed to meet the Basel III capital requirements that will be fully implemented in 3, amounting to €2019 billion at the end of 35, was reduced to less than €2010 billion in December last year ; most of the major intermediaries would already meet the new prudential standards. Nonetheless, the capital strengthening action will have to continue. If on the one hand it can mechanically reduce the return on capital, on the other it favors its stability; by increasing resilience to adverse shocks, it supports investor confidence and contains the cost of external financing”.
