Bank derisking must not take oxygen away from the economy

The letter from Banco BPM's CEO to employees, following the takeover bid by Unicredit, reads: 'We are a large, independent Italian bank with a strong vocation for being close to the territories and SMEs, the backbone of our country'.The issue of credit to the territories and the real economy - where SMEs are almost the entirety - was at the centre of a recent meeting organised by First Cisl (RM and RI). The analysis presented showed that in the capital, between the end of 2011 and mid-2024, bank branches were reduced by more than 40 per cent and loans to industrial activities contracted by 58.9 per cent, compared to a decrease of 27.3 per cent nationally and only 22.5 per cent in the province of Milan. In construction, credit rationing in Rome reached -72.5% (-68.8% in Italy and -43.2% in Milan) and the reduction in loans to the tertiary sector was less intense. To this trend, the phenomenon of 'financialisation' was added, with a 96.9% increase in credit to financial companies in the province of Rome (against a corresponding -10% and -11.8% in Italy and Milan), an indication that the unsatisfied demand for bank loans was partly filled by intermediaries with more onerous pricing and less regulation.Commenting on this, the report states: "it is recalled how the peripheralisation of Rome with respect to the national credit and economic framework also took place through the abandonment of the capital by most of the pre-existing decision-making centres of the national banks... but also with the revision of the system of credit proxies that centralised the most important decisions in Milan.The trend is common at the national level, even if in the 2020-2021 period the strengthening of public loan guarantee instruments may have mitigated the tightening of credit supply conditions, while in the 2022-2024 period, the drop in loans is certainly also attributable to the drop in demand, due to the rise in interest rates.But one has to wonder how much the drying up of the flow of bank credit to the economy has weighed on the closure of so many micro and small manufacturing companies - which, according to data from Piccola Industria di Confindustria, have shrunk in numerical terms between 2012 and 2021 nationwide, in contrast to medium-sized companies, which have been growing since 2017. One thing is certain, when the Bank of Italy analyses the factors underlying the change in credit to companies, into extensive margin (referring to new credit relationships) and intensive margin (referring to existing relationships), it is to the latter that it traces the negative changes in bank loans.What is important is how to reverse this trend of bank credit rationing for SMEs, combining this with an increasing ecological and social sustainability of the economy. During the meeting on 'Credit and Territory', mentioned in the opening, the idea of a 'Credit Observatory' of Roma Capitale was launched. It could be a multistakeholder pilot project to be replicated in other provinces, to connect local projects of urban regeneration, energy transition, green public mobility, water saving, hydrogeological consolidation, industrial reconversion, generational transition in craftsmanship, social and labour inclusion, and overcoming gender gaps, enhancing ESG factors in the allocation of credit, which the legislation on sustainability reporting, mandatory from the 2024 budgets, should promote; it would also be a way to give continuity to the missions of the NRP, of which municipalities are the implementers. The contraction of credit to the economy, with varying intensity according to latitude and risk, is confirmed by the collapse in the ratio of loans to residents (other than AAPs and financial intermediaries) to GDP, which fell from 108% at the end of 2011 to 70% at the end of 2023. A trend to be blamed on the concentration of the banking market, the retreat of cooperative and popular credit, and the derisking induced by capital ratio regulations. On the eve of the entry into force of Basel III plus in 2025, it is important to defuse its possible depressive effects on the 'backbone of our country'.

Lecturer in Economics of Financial Intermediaries Markets, Luiss

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