DBRS on Major Italian Banks

Loan Books Shrink at in 2024, Despite Late-Year Uptick,

Italy’s largest banks experienced a contraction in their loan books in 2024, continuing a trend from the previous year, even as a modest rebound in lending activity emerged in the latter part of the year. According to a recent commentary by Morningstar DBRS, the rebound may prove short-lived as persistent economic uncertainty and rising trade tariffs weigh on both demand for loans and credit supply.

Morningstar DBRS analyzed data from Italy’s five largest banks—Intesa Sanpaolo, UniCredit, Banco BPM, BPER Banca, and Banca Monte dei Paschi di Siena—over the 2023–2024 period. While these banks posted record financial results in 2024, including a combined €24 billion in net profits and €12 billion in dividend payouts, loan growth remained a weak spot.

“Total net lending at the large Italian banks fell by 2% year-over-year in 2024, a net reduction of €22 billion,” (…)“This was driven by subdued new loan origination, particularly from corporates, which failed to offset repayments and early reimbursements.”

The report notes that this decline follows a steeper 4% drop in 2023, amounting to a cumulative contraction of €72 billion over the two-year period. While lower interest rates contributed to a recovery in residential mortgage demand toward the end of 2024—a trend that likely persisted into Q1 2025—corporate lending remained sluggish amid macroeconomic and geopolitical headwinds.

Selective Lending and Sectoral Risks

The cautious approach by banks stems from tighter lending standards, particularly for sectors seen as vulnerable. Morningstar DBRS observed stricter credit criteria for commercial real estate, construction, and automotive companies. Each of these industries faces specific challenges—CRE with refinancing pressures due to high rates, and automotive with structural transformation and trade-related hurdles.

In parallel, banks have shifted commercial focus toward non-lending services such as asset management and insurance products, aiming to diversify revenues and reduce credit and capital risk exposure

State Guarantees Still Matter

State support continues to play a crucial role in sustaining lending, particularly to SMEs. Although COVID-era guarantees are being phased out—now accounting for just 4% of gross loans—the broader suite of public guarantee instruments remains influential. According to Morningstar DBRS, nearly 30% of gross non-performing exposures (NPEs) at some banks were still covered by state guarantees as of year-end 2024.

“These instruments, including those provided by Mediocredito Centrale, SACE, Consap, and ISMEA, remain essential to new loan origination and in shielding banks from credit losses,” the agency highlighted.

Challenges Ahead: Growth, Consolidation, and Uncertainty

Looking forward, Morningstar DBRS expects only modest loan growth in the medium-to-long term due to a subdued economic outlook. In its March 2025 macroeconomic update, the agency revised Italy’s 2025 real GDP growth forecast down to 0.6%, citing geopolitical risks and the impact of new tariffs on trade. The forecast for 2026 remained unchanged at 0.9%.

In addition to macroeconomic concerns, the ongoing consolidation in Italy’s banking sector could affect lending dynamics. Four out of the five top banks are involved in potential M&A activity, which could lead to rationalisation in credit policies and restructuring of commercial strategies.

“While we do not expect significant systemic impact, individual banks may experience divergent lending trends as they navigate integration processes,” Morningstar DBRS noted. “That said, competitors may seize this moment to expand their loan books and gain market share.”

Conclusion

Despite these headwinds, the overall credit risk for Italian banks appears manageable, thanks to improved asset quality and stronger revenue diversification. The gross NPE ratio dropped to 2.9% in 2024, and the average return on equity rose to 14.3%, up from 13.7% a year earlier.

Entering Italian NPE Market is a Newsletter and a Linkedin Group focused on News, Updates, and Insights on Italian Banks, Distressed Credit Markets, Fintech, and Real Estate.

Relevant Links:

https://dbrs.morningstar.com/research/451573/loan-books-at-large-italian-banks-contracted-in-2024-with-a-late-year-rebound-that-could-be-short-lived-amid-tariffs

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