Bankit Stability Report

Main risks due to weak growth and geopolitical situation

Dec 13, 2023

A modern, sleek financial concept representing the stability of Italian banks, without any text. The image features a large, secure, and traditional vault door in the foreground, symbolizing financial security. The background showcases the iconic Italian flag colors, elegantly blended in a sophisticated pattern. The overall design conveys a strong, stable, and prosperous banking sector in Italy, focusing on imagery that suggests financial robustness and reliability.

Bank of Italy published its second 2023 issue of the report on financial stability .The main risks for the banking system continue to depend on weak growth prospects and the evolving international geopolitical situation

Share Entering Italian NPE Market

The market valuations implied by the main indicators do not currently show any particular signs of tension in the sector. In the first half of the year, the average price-to-book ratio of Italian banks increased, partly as a result of the improvement in profitability; however, it remained below unity, in line with what was observed for euro area intermediaries.

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The quality of banking assets remained satisfactory in the first nine months of the year. The deterioration rate rose marginally to 1.1 percent (fig. 2.2). The increase was mainly attributable to the deterioration for households (0.9 percent, up from 0.5 in December 2022); by contrast, the figure for corporates remained virtually unchanged (1.5 percent). The riskiness of loans backed by a public guarantee linked to the pandemic emergency increased slightly but remained at levels contained.

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In the first six months of 2023, around EUR 3 billion of impaired loans were sold. The ratio of these loans to total loans (nonperforming loans ratio, NPL ratio) net of adjustments remained stable (1.4 percent; ), reflecting the concomitant reduction in outstanding loans (see Appendix table A2). The gap between the significant Italian groups and the aggregate of intermediaries subject to direct ECB supervision was substantially reduced to zero.

Italian NPL Collections

November 16, 2023

Scope Ratings published its regular update based on monthly servicing reports available to September 2023. Italian NPL collections doubled month-on-month in September to EUR 137m from EUR 69m. But they were 25% and 42% below September 2022 and 2021 volumes. Collections for the first nine months of 2023 are well below the two previous years for the same period.

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The ratio of stage 2 loans in the IFRS 9 classification to total performing loans before adjustments decreased further. of adjustments decreased further (by 30 basis points), to 9.7 percent. The gap between banks significant and less significant banks is almost zero.

Money FLash

The development of indicators anticipating deterioration (e.g. payment delays of performing borrowers) does not show any particular signs of deterioration in credit quality; however, the effects of the rise in interest rates and the less favorable macroeconomic environment, not yet fully unfolded, could affect the future repayment capacity of borrowers with a significant share of variable-rate loans. In its supervisory activities, the Bank of Italy continues to monitor the adequacy of loan impairments made by banks closely.

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Recent projections consistent with the macroeconomic scenario published by the Bank of Italy in the October Economic Bulletin indicate a gradual increase in the rate of deterioration of overall loans to households and businesses over the next two years, reaching 3.2 percent in 2025, driven by the increase in the debt burden. The rate of deterioration would, however, remain well lower than that recorded in past crisis episodes for both households and businesses.