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Italy’s banking sector: Facts & Figures

Updated December 2021 – For earlier editions of Facts & Figures click here

In 2020 the spread of the Covid-19 pandemic led to an abrupt and deep GDP contraction, in Italy and elsewhere. Italian economic activity experienced a drop of around 8.9%, the worst since the Second World War. Thanks to the successful vaccination campaign and the improvement in public health, the Italian growth resumed in 2021. According to current forecasts, economic recovery is expected to strengthen decisively in the second half of 2021; it may rise more than 5% on average for the year, so that more than half of the fall in GDP recorded in 2020 can be made up. Starting from the second half of 2022, GDP is expected to return to pre-pandemic levels and will continue to growth in the next years, to around 4.5% in 2022. Once more, expected recovery will be supported by the more than resilient Italian banking sector banks that played and are still playing a key role supporting the real economy to face the pandemic crisis. The premise to make this possible was the good state of health of banks after years of continued efforts to improve capitalisation and asset quality.

The health of Italian banks is also reflected in the fundamental role they continue to play in favour of households and firms. Italian banking sector was strongly committed to ensure that Italian Institutions measures to support families and companies affected by the coronavirus outbreak are correctly and quickly applied. In December 2020, loans to households and non-financial corporations posted a 5.5% yoy increase. In the first five months of 2021, lending continued to increase apace, although more slowly than before. The most recent data, updated to May 2021, show that total loans to households and non-financial firms continue to grow at a rate of 4.4% on an annual basis. In detail, loans to non-financial corporations grew by 4.6%, supported by government measures contained in the ‘Cure Italy’ and ‘Liquidity’ decree laws, sectoral initiatives and those offered bilaterally by individual banks to their customers. According to the data of June 2021, it has been estimated that the existing outstanding debt moratoriums to households and NFCs amount approximately to €128 billion, equal to 46% of all the moratoriums granted since March 2020 (approximately €280 billion). This amount refers to approximately 1.2 million applications.

In 2020 total funding (resident customers deposits and bonds) grew about 8.0% year-on-year (+4.7% in 2019), driven by deposits (+10.5% in 2020 vs +5.8% in 2019), while retail bonds continue to decline (-8.3% in 2020 vs +1.9% in 2019). Overall, the latest figures (updated to May 2021) indicate that total funding from customers grew by +6.3% year-on-year. In May, firms had deposits of almost €460 billion and those of households amounted to €900 billion, respectively 16 and 7% more than twelve months previously.

In 2020 the Italian banks’ asset quality remains high. Despite the sudden contraction in economic activity, the reduction of the stock of NPL continued in 2020, due to both the reduced flow of new NPLs (1.1% of total loans in 2020, slightly lower than in 2019) and further disposals (€33 billion in 2020). The stock of NPLs net of provisions was €51 billion as at end 2020 (28% lower than end-2019), showing a reduction from 3.3% to 2.2% of total loans.

Capital adequacy has also Improved. At the end of December 2020, the CET1 ratio of the entire banking sector was equal on average to 15.5% of RWAs, about 150 basis points higher than end-2019 (15.5% for Significant Banks and 18.7% for Less Significant Banks).

The Covid-19 pandemic led to a significant reduction in profitability in 2020. The return on equity (ROE), net of extraordinary components, was 1.9% (1.4% for Significant Banks and 3.1% for Less Significant Banks).

The negative effects of the Covid-19 pandemic have been driven Italian banks to review its business models to make them more sustainable and suitable for the profound changes under way. The restructuring plans and the consolidation of the Italian banking sector also respond to these challenges, as well as those of regulatory changes and digitalisation. At the end of 2020, Italy’s banking industry (comprising bank holding groups and independent banks) consisted of 110 active players. Banks have continued to reorganize the distribution network by cutting the number of branches and employees. In 2020 the number of branches fell by 3.2% (to 23,481) and the number of employees by 2.3% (to 275,224), continuing the trend since 2008. Following the streamlining of the branch network, the average number of bank branches per 100,000 inhabitants decreased by about 33% compared with 2008. The rationalisation of the distribution network mainly involved significant non-cooperative groups, which since 2008 have reduced both the number of branches and the number of branches’ employees by about 40%. The drop in the in the number of branches has been more limited for less significant banks (5.5%).

The restrictions caused by pandemic on mobility favoured a greater use of digital distribution channels, encouraging banks to invest in the development of projects connected to financial innovations applied to the provision of financial services.

Due to the pandemic, the digitalisation of banking customers has shown a strong acceleration. In 2020, the share of customers who could access their current accounts through digital channels was 79%. Compared to the end of 2019, the share of banks that allow customers to receive quotes and to submit remotely loan applications (from 36 to 39% for households and from 16 to 22% for businesses).

Almost all the larger intermediaries and a third of the smaller ones have planned or undertaken projects for technological innovation applied to the provision of financial services (FinTech). The main areas of interest are improving customer services and exploiting information to refine business strategies. About a third of intermediaries expanded their investment plans compared to what was planned at the beginning of last year, partly to better address the needs created by the health emergency.

Contributor: Alessandra Amici a.amici@abi.it