(Finance) – Bank credit to the private sector yes will contract by 1.9% in 2023 For then start growing again by 1.1% in 2024 and 2.5% in 2025, similar to other major Eurozone economies. This is what emerges fromEY European Bank Lending Economic Forecast 2023, analysis of the European credit situation, aimed at examining the evolution of loans to the private sector and forecasting trends.
According to the EY study, Mortgage lending is expected to rise 1.1% this yearAnyway down from +4.2% in 2022. Consumer credit is estimated to grow by 4.5% this year, while loans to businesses are expected to contract by -5.1%, before returning to growth of 1.4% in 2024.
Stefano Battista, Italy Financial Services Market Leader at EYcomments: “Financial intermediaries continue to operate in a very complex macroeconomic and geopolitical context: interest rates are at the highest levels Since the birth of the Eurozone, tensions and conflicts in Europe and the Middle East have escalated this year and, although inflation and energy prices are falling, the reference framework remains uncertain. Transaction volumes in the real estate market slowed down in the second half of the year and consequently the level of mortgages is falling. Looking to the future, Italian banks find themselves having to undertake a series of actions to confirm the solidity of their economic-financial indicators in a year in which interest rates should begin to reduce, continuing to support customers and maintaining a level of important investments, necessary to support the digital technological transformation, a strategic element for sustainable growth in the long term”.
While net mortgage lending increased in the third quarter of 2023, the growth of 0.1% was marginal, the weakest since the second quarter of 2015: the positive trend for mortgage lending in Italy could therefore stop (the increase has averaged 3.1% since the beginning of 2020 to mid-2023, versus 1.2% from 2015 to 2019). However, thanks to limited growth in both housing prices (at the end of 2022 average prices in Italy were 9.3% higher than at the beginning of 2019, while in Germany and France property prices increased by 24.4% respectively and 22.4% in the same period) and – predictably – interest rates, the slowdown in mortgage lending could be moderated in the future. The stock, therefore, is expected to grow 1.1% this year, down from 4.2% in 2022. An increase of 0.8% is estimated in 2024, while in 2025 the expected rate cut should favor a greater increase (+1.7%).
The 5.1% y/y increase in Italian unsecured loans in the third quarter was the strongest among the large Eurozone economies. It also represented a recovery compared to +4.6% in the second quarter and it was the largest since the first quarter of 2020. The improvements in some fundamentals of the Italian economy – thanks also to the decline in inflation – supported the growth of consumer credit. The analysis still predicts a slow increase in consumer credit this year and next, 1.1% and 0.5% respectively, as the impact of higher interest rates is felt. Overall, net consumer credit is expected to rise 4.5% this year, up from 3% in 2022, followed by 1.2% in 2024 and 2.6% in 2025.
The long period of deleveraging by Italian companies, which began during the Eurozone debt crisis and temporarily halted in 2020 and 2021 as companies resorted to government-backed loan programs, it resumed. Net loans to businesses fell 8.7% y/y in the third quarter of 2023, the fourth consecutive quarter of a y/y decline, leaving the stock of corporate debt at its lowest level since the first quarter of 2005 in terms of liquidity. Business investment is likely to remain very subdued in the coming quarters, due to sustained increases in interest rates and uncertainty over the global outlook. Overall, net loans to Italian businesses are expected to decline by 5.1% this year, a further decline after the 2.4% decline in 2022. However, the end of interest rate hikes is expected could induce a return to modest growth of 1.4% in 2024 and 3% in 2025.
In the third quarter of 2023 in Italy the share of NPLs was equivalent to just over 20% of GDP, much lower than that of France (47% of GDP), Germany (39% of GDP) and Spain (29% of GDP) . However, the fact that many Italian mortgages have variable rates could lead to an increase in devaluations. The NPL ratio is estimated to average 2.3% this year, down from 2.5% in 2022. Increases are expected in 2024 (to 3.4%) and 2025 (3.6%) , but this is a modest increase compared to past standards. The NPL ratio went from 5% in 2009 to 9.7% in 2012, before reaching over 16% in 2015.
“During 2023, we have witnessed a general slowdown in bank lending, both to corporate customers and private customers. At present, the trend is expected to persist even in the short term, mainly due to a context still characterized by high interest rates. Specifically, we note how this phenomenon has, in some cases, pushed companies to use more of their own capital for financing investments and initiatives aimed at business growth; a solution which is destined, however, to have a limited viability over time. In the long term, however, we expect a gradual rebalancing by companies in the reuse of sources of debt capital, thanks to the expected normalization and progressive reduction of interest rates. This framework – in the absence of further geopolitical/financial shocks and thanks also to numerous partnerships between banking operators – we expect to be a harbinger of a general recovery in loan volumes between the end of 2024 and the beginning of 2025″, he concludes Filippo Mastropietro, Banking & Capital Markets Leader of EY in Italy.