The Covid-19 crisis shook consolidated trends in all economic sectors, including the Italian banking system. September is a perfect month to analyse what happened in the first semester of 2020 and to project it towards the end of the year. Prometeia has identified six signs that can be seen as trend reversals for Italian banks. The current situation is still uncertain and cautious in terms of consumption and investment, but the interventions of the Government and the European authorities have already shown significant impacts. Below is our list.
1. Credit to businesses is growing again
Since March, credit to corporate customers has risen again - after a full year of contraction - reaching a growth rate of 4.5% in July (+7.1% the Eurozone average). The measures to support liquidity to businesses, implemented by the Government mainly through the "Liquidity" decree, have therefore supported the recovery of credit with a net flow of almost 50 billion euros in the first 7 months (these values were only recorded in the same period of 2008, i.e. before the subprime mortgage crisis).
2. Zero growth for consumer credit
The sector that has been most affected by the lockdown is certainly consumer credit: in July there was almost zero growth on an annual basis (+0.4%), a figure unthinkable just at the beginning of the year, when this type of credit was expanding with growth rates of over 8%. In general, after an initial slowdown in March and April, credit to households started to increase again (+1.7% in July, +3% the Euro area average), although sustained mainly by the recovery of "other loans", which include those to producer households. The latter are probably the main beneficiaries of loans up to 30,000 euros and fully guaranteed by the Central Guarantee Fund, whose disbursements have been accelerating sharply since the beginning of May.
3. Uncertainty leads to a strong accumulation of deposits from households and businesses
Residents' deposits continued to grow at a rate of around 7-8% in the first months of the year, primarily because the lockdown forced households to reduce spending and thus leave liquidity in their current account, while more recently businesses have been accumulating liquidity in view of the coming months of uncertainty.
4. Boom of domestic government bonds in banks' balance sheets
Banks also stockpiled liquidity, thanks to the ECB's June TLTRO III auction (which has the most favourable conditions). At the moment, banks have used part of these funds to purchase Italian government bonds, which have reached a record amount of 434 billion euros.
5. An initial rise in interest rates for companies
The second quarter of the year saw a rise in interest rates on new credit for three consecutive months (with an increase of 21 basis points between March and June). Nevertheless, the rate still remains about 10 basis point lower than the average rates applied in the Euro area.
6. Fixed rate on mortgage loans increasingly lower
There was also a significant record in interest rates on new loans to households. In June the fixed rate on new mortgages touched a new historical low: 1.25%.
We will now wait until autumn to see what shape the long-awaited recovery will take.