Banks

ABI, rate drop stabilised: household loans at 3.56% (-0.5%) and business loans at 5.25% (-0.13%)

The Monthly Bulletin of the Banking Association also shows June 2024 a new decline in the cost of loans and financing, but these are still contracting due to slowing growth

by Redaction Rome

13 July 2024

L'agglomerato urbano di case e palazzi di Napoli visti dalla collina di Capodimonte . In primo piano la cupola della Basilica dell'Incoronata Madre del Buon Consiglio 3 luglio 2024. ANSA / Ciro Fusco

3' min read

Key points

Bank loans
Impaired loans down
Market rates
Interest on collection
The margin between the lending rate and the funding rate is reduced

3' min read

The fall in lending rates for households and businesses continued in June. So much so that this downward trend has stabilised in recent weeks. The average rate on new home purchase transactions, according to the monthly bulletin issued by the Italian banking association, fell to 3.56%, compared to 3.61% in May 2024 and 4.42% in December 2023. A few more decimal places for the decline in corporate financing rates. The average rate on new business loans decreased to 5.25 per cent compared to 5.38 per cent in May 2024 and 5.45 per cent in December 2023. Overall, the average rate on total loans (i.e. taken out over the years), as the ABI explains, fell to 4.77% from 4.80% in the previous month.

Bank loans

Rates on loans and financing fall, but the volume of loans granted by banks and credit institutions continues to decline, albeit to a lesser extent than in May 2024. The drop in credit volumes, explains ABI in its July bulletin on June 2024 data, is still linked to the slowdown in economic growth, which contributes to depressing the demand for loans: in June 2024, loans to businesses and households fell by 1.7 per cent compared to a year earlier, slowing down compared to the drop recorded in May 2024 (-2.1 per cent) when loans to businesses fell by 3.1 per cent and those to households by 1.1 per cent.

Decline in impaired loans

A positive signal for banks. As of May 2024, net impaired loans (i.e. the total of non-performing loans, probable defaults and exposures past due and/or in arrears calculated net of write-downs and provisions already made by banks) fell slightly to €30.3bn, from €30.5bn in December 2023 (€31.2bn in September 2023). Compared to their peak level, 196.3 billion reached in 2015, they are down by 166 billion. In May 2024, net impaired loans represented 1.43% of total loans. In December 2023, this ratio was 1.41% (1.42% in September 2023; 9.8% in 2015).

Market rates

In the first 11 days of July, the 3-month Euribor rate averaged 3.70 per cent (3.72 per cent in June) and was down 30 basis points from the

highest value recorded in October 2023. While the rate on six-month BOTs averaged 3.60% (3.59% on average in June) and down 45 basis points from the peak value recorded in October 2023. The 10-year Irs rate (widely used in mortgages) averaged 2.82% (2.79% in June average) and was down 70 basis points from the peak value recorded in October 2023. The BTP rate averaged 3.96% (3.95% in June) and was 103 basis points lower than the peak value recorded in October 2023.

Interests on collection

As stated in the Association's bulletin, the rate charged on new fixed-term deposits (i.e. certificates of deposit and time deposits) in June 2024 was 3.39%. In May 2024, this rate was higher in Italy than the euro area average (Italy 3.50%; euro area 3.44%). Compared to June 2022, (last month before the ECB rate hikes) when the rate was 0.29%, the increase was 310 basis points. The yield on new issues of fixed-rate bank bonds in June 2024 was 3.91 per cent, an increase of 260 basis points compared to June 2022 when it was 1.31 per cent. In June 2024, the average rate on total deposits (certificates of deposit, savings deposits and current accounts) was 1.02 per cent (1.05 per cent in the previous month; 0.32 per cent in June 2022). The rate on current account deposits alone was 0.56% (0.58% in the previous month; 0.02% in June 2022), bearing in mind that the current account allows the use of a multitude of services and, the Association reminds us again, does not have an investment function.

The margin between the lending rate and the funding rate is reduced

Finally, the banking association points out that the margin (spread) on new business (the difference between the rates on new loans and new funding) with households and non-financial companies in June 2024 fell to 193 basis points (200 points in the previous month). And in terms of funding quality, ABI points out that indirect funding, i.e. investments in securities held with banks, increased by around 213 billion between May 2023 and May 2024 (134.8 billion households, 20 billion companies and the remainder to other sectors, financial companies, insurance companies, public administration). In June 2024, medium- and long-term funding, through bonds, grew by 14.9% compared to a year ago (+18.4% in the previous month). Deposits alone, in their various forms, grew by 1.4% in June 2024 on a bank loans year-on-year basis (-0.8% the previous month). Total direct funding (deposits from resident customers and bonds) increased by 3.0% year-on-year in June 2024, continuing the positive trend recorded since the beginning of the year (+1.4% in May 2024).