War finds Italia healthy: more profitable companies and solid banks

The umpteenth geopolitical shock caused by the conflict in Iran finds the Italian economy in a better situation than in previous years: households, businesses and banks have seen an improving 2025 and this state of health shelters them from the possible impact of a continuation of the Gulf crisis and in some way mitigates its effects. This is the overall picture that emerges from the Bank of Italy's first Financial Stability Report for 2026: risks, of course, remain and uncertainty remains sovereign with the feared fallout. "The financial situation of households and businesses is balanced, but a worsening of the macroeconomic scenario could affect their confidence. For households, risks remain limited thanks to their capital strength and low indebtedness. For businesses, the picture also appears stable on the whole, supported by a contained level of debt and moderate credit expansion,' it says. 'In a context of overall uncertainty, increases in energy and transport costs, more persistent inflationary pressures and less accommodating financial conditions could have an impact on households' purchasing power and businesses' costs, as well as on their confidence. If the situation worsens for households and businesses, the first to suffer are the banks. "Although starting from a position of solidity, financial intermediaries are exposed to risks that could materialise if the conflict continues. The worsening of the geopolitical framework and the increase in uncertainty may expose banks to risks: funding and liquidity conditions could worsen if market yields rise sharply; asset quality could be affected by a deterioration in companies' ability to repay loans. The Italia banking system is still characterised by high levels of capitalisation and profitability,' it said.

According to the paper, household expectations worsened following the outbreak of the conflict and the propensity to make significant expenditures decreased. Nevertheless, they come from a second half of 2025 in which "purchasing power has continued to increase, albeit to a lesser extent. The propensity to save has decreased, but is still around the values of the pre-pandemic period'. And again: 'according to preliminary data from the financial accounts, financial wealth grew in 2025. In the last six months of the year, households disinvested from equities and participations, and to a modest extent from time deposits and bonds of non-financial corporations. Sight deposits increased'. The demand for credit also grew during the same period.

The picture of the business sector is even more reassuring. "Against a backdrop of high uncertainty, the financial situation of businesses remains balanced overall, with low debt levels and moderate credit growth", even though "increases in energy and transport costs and less accommodating financial conditions could nevertheless have an impact on costs and business confidence". In the course of 2025, profitability conditions for businesses improved: in the last quarter of the year, value added growth in nominal terms was 2.7 per cent year-on-year (from 1 per cent at the end of 2024). 'In the last quarter of the year, Mol rose again,' it adds. 'The favourable trend in investments continued, albeit with a slowdown compared to the first half of the year. Financing requirements remained positive: at the end of 2025, the ratio of self-financing to investments was just under 85 per cent'.

In this context, the 'banking system faces the tensions following the outbreak of the conflict from an overall solid position. The profitability of the Italia banking system remains high, in comparison with past years and with the euro area; the average ratio between market value and book value of listed Italian banks remains high and clearly higher than that of the area's main intermediaries,' it explains. And again: 'the loan deterioration rate decreased slightly. It stood at 1.2 per cent in the fourth quarter of 2025 and remains higher for less significant banks'. The expected decline in profitability in 2026 is not likely to cause an excessive tightening in lending if the economic environment worsens. Direct exposure to the sectors most affected by energy price rises remains low overall, but potential risks related to the indirect effects of the war remain. "Italian banks' lending is not excessively concentrated in the sectors most affected by the energy price increases: about 20 per cent of loans to non-financial companies are in sectors for which it is estimated that these increases between December and March have led to a non-marginal increase (equal to or greater than 2 percentage points) in the ratio of costs to production value".

The impact of the crisis on the Italian financial markets is also limited at the moment. "Yields on Italian government bonds have increased and, to a lesser extent, their spread over German bonds; share prices have recovered the losses accumulated since the start of the war, but remain exposed to significant fluctuations. The functioning of the markets remains orderly'. The report points out that 'following the announcement of the truce in early April, Italia's stock index recovered the losses accumulated since the outbreak of the conflict, posting a gain of 7 per cent since November. Moreover, despite the persistence of highly uncertain conditions, risk indicators do not show any particular fragility'. Meanwhile, in the second half of 2025, 'the share of Italian government bonds held by foreign investors had increased. However, this share remains at lower values than those recorded in the other main euro area countries. The share held by Italian households and banks rose slightly, while the shares attributable to the Eurosystem and Italian investment funds declined'.