Co-op social loan suffers from rate competition

To obtain a significant return, above 2.2 per cent net per annum, one must bet on the tied formula (up to 24 months), otherwise in the ordinary version in many cases returns do not go beyond 0.74 per cent. The gross interest must also be taxed at 26%. We are talking about social loans managed by the main consumer co-operatives in Italy. Today, the six largest consumer co-operatives (Alleanza 3.0, Unicoop Firenze, Unicoop Etruria, Nova Coop, Coop Lombardia and Coop Liguria) collect almost EUR 7 billion. This is a lending formula that, according to current regulations, may not exceed three times the Coop's net worth, including available reserves. The sums deposited in Coop savings accounts have been steadily decreasing in recent years and today there are no longer any cases of large Coops exceeding the aforementioned three times equity limit (see table opposite).

However, social lending remains a fundamental financing channel for the Co-operative system. The Co-operative, as stated in its financial statements, undertakes not to engage in any activity that could be construed as active lending. In fact, social lending is not covered by the bank guarantee fund and the issue of lender protection is one of the most sensitive aspects of this formula. The social loan is a form of lending that the members make to the cooperative: the latter is obliged to use the sums collected in operations strictly functional to the pursuit of the social purpose. Thus, activities related to the development of the cooperative. The collection of the loan must therefore have an instrumental function with respect to the institutional activity of the co-operative even if, while waiting for these actions to materialise, Co-ops deploy financial investments, often concentrated on low-risk government securities, to optimise liquidity management.

Social loans can have different durations and repayment times. In most cases (72% of the total sums collected nationally by large cooperatives) it is immediately repayable (the sums paid are always available to the member, with a minimum statutory notice period of 48 hours), but there are, and are growing, differentiated formulas of medium- and long-term tied loans (about 28% of the total).

The lending of each cooperative is precisely defined in a set of regulations, which must contain all the necessary rules for the collection of members' savings. Since 2022, the rise in rates and consequently in yields in the forms of liquidity management has increased competition for social lending. For example, Nova Coop's 2024 Annual Report states that last year 'social lending showed a decrease in value despite Nova Coop's focus on information and promotion services. The financial market in 2024 still offered attractive interest rates that influenced the choices of savers, and furthermore, the continuation of wars that caused the rise in the cost of raw materials, raising the cost of living, led to a reduction in lending members'.

In order to offer more guarantees to lenders, beyond what is required by law, some cooperatives introduce additional standards. Alleanza 3.0, for example, adopts so-called 'Attention Indices': these are tools, based on specific solvency indicators, that represent situations when they occur that the cooperative must promptly react to in order to determine and implement corrective actions and measures.