Bank of Italy Warns of High Public Debt Risk Factor in Financial Stability Report

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Government bonds in the hands of Italian households in the second half of 2023 recorded strong growth, exceeding 10%, driven by the increase in yields. The proportion at the beginning of 2022 was around half (5% of the total). The Bank of Italy shows this in the Financial Stability Report. The increase in the household share was offset by a reduction in the stock in the hands of banks and insurance companies as well as the Bank of Italy and theEurosystem, according to the ‘slimming’ of the balance sheets of the central bank related to the normalization of monetary policy. Foreign holders own about 20 percent of Italian debt securities. The average cost of the stock of securities in circulation reached 2.7 percent, continuing the growth rate that began in April 2022. The situation, however, continues steadily, with increased volumes for securities of medium- time and long-term and average yield at issuance falling from October 2023 high. The Bank of Italy then remembers the record for a sales issue achieved by the third issue of the BTP Valore which raised 18.3 billion.

High debt risk factor for financial stability

High public debt “continues to represent a risk factor, especially in the event of less favorable economic developments than expected”. The Bank of Italy’s report on financial stability highlights this risk in a situation that has generally improved compared to last November: the country’s financial stress indicator is indeed “at the lowest in the last 15 years” and in the short term there is the uncertainty related to the possible worsening of ongoing conflicts and the continuation of high interest rates . So the focus is on the relationship Debt/GDP, also for those dealing with financial stability on Via Nazionale. The report repeats the warnings given by Via Nazionale in the hearing on the Def: “to return to the path of reduction, according to the indications in the recent reform of the Stability and Growth Agreement, a sustainable agreement is necessary to achieve. strengthening the output as well as improving the structural deficit”.

A significant reduction in credit to businesses

Business credit fell sharply last year for all types of business and was “particularly severe” for the riskiest. This was published by the Bank of Italy’s Financial Stability Report, which says that this decline is also the result of companies’ decision to use the sufficient liquidity available to pay back loans. at variable rates early on versus their sudden rise in their wake. reference to interest rates. Credit conditions are relaxed for large companies, and among those with less than 50 employees, the proportion of those who received their request for a new bank loan was rejected (in the fourth quarter). The credit transfer has no effect, at least check the report good health of businesses.

Since the launch of the ECB’s restrictive monetary policy, Italian companies have indeed shown that they are “resilient” and “in perspective, there would even be a possible tightening of financing conditions and a weakening of the macro framework -economic has some impact on vulnerability. of the department”. Financial leverage, as indicated in the Financial Stability Report, decreased by 1.4 percentage points to 35.3% due to both the decrease in bank debt and the strengthening of capitalization. A healthy situation reflected in Bankitalia’s forecasts regarding the movement of banks’ impaired loans: some limited increase in the second half of this year, characterized by the performance of loans classified as ‘level 2’ and with late payments, and slightly worse in the two-year period ’25-’26. This estimate of an increase is just as limited, certainly lower than the forecast made just a year ago, when there was still no visibility on the ECB’s monetary policy turn.

A jump in serious cyber attacks linked to the war in Ukraine

The “cyber real events” reported by banks and other financial intermediaries under the supervision of the Bank of Italy increased significantly last year and a half, writes the Bank of Italy in the Financial Stability Report, “linked to the conflict in Ukraine”, we read without any clear reference to the intuitive nationality of the hackers. From the investigative activity through Nazionale it seems that “financial intermediaries reported 30 bad cyber incidents in 2023, a significant increase compared to previous years (12 and 13 reports in 2021 and 2022 respectively).These are attacks on the availability of services offered to customers (called DoS attacks), in some cases as a result of topics related to the conflict in Ukraine, the most frequently detected in the past year (15 reports). The Via Nazionale report says that the impact of these attacks was limited, however, with periods of service that were no longer available more than five hours. Cyber ​​incidents related to the use of malware and social engineering techniques have also occurred, as well as unauthorized access to intermediaries’ systems.

Insurance, still a strong solution in the Life sector

The Italian insurance sector remains strong with a capitalization, provided by the solvency index, of 258% last December as “high levels” as described by the Bank of Italy in the Stability Report Finances that however show, once again, how compliance is compliance. the Life section. “In the Life sector – we read – the ratio between compliance and prices was still high (90% at the end of March, from 85% the previous year). The solvency phenomenon proved to be appropriate for companies that distribute products through banks and financial promoters (103% ratio, from 119% in March 2023). The phenomenon, which we read in the Via Nazionale report, repeats itself in the cash flows of companies active in Life. “As a result of the lower collection and the higher costs for redemptions there was a gradual contraction of the net balance of technical cash flows for the Life sector, which became negative from the first quarter of 2023; this leads to liquidity needs that the companies above all meet through reinvesting less mature securities”.

Securitisations: Gacs enforcement risk for 11 transactions

There is a risk that the public guarantee, the Gacs, will be recognized by the Treasury in 11 security operations carried out by banks before 2019. This is indicated by an analysis by the Bank of Italy in the Financial Stability Report. As of last June, there were a total of 46 securities from non-performing loan banks with the support of Gacs, for a total total value of secured assets (total book value) of about 118 billion. For operations supported by Gacs, explains the Bank of Italy, an increase in the level of coverage of high notes (a type of less risky securities) was noted. The reason is due to the payment of interest, usually at variable rates, paid back before the principal and thus included a portion of the recovery that was to be paid back. “The projections of the expected collections made by the servicemen at the end of June 23 – reveals the Report – raised the possibility that the GACs could be activated for 11 transactions, all originating prior to the renewal of the guarantee in 2019. For transactions originating from 2020, the indicators have not yet provided fundamental indicators on key notes, but they are recording a slowdown in collections”.

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