According to the Moody’s rating agency in Italy ‘non-performing loans will increase as price increases have affected the creditworthiness of households and small businesses’, but higher rates will support net interest income and profitability, ‘outpacing the increase in loan adjustments and operating costs’.
Furthermore, Italian banks ‘will continue to sell and securitize NPLs’. In terms of expenses, on the other hand, the reimbursement of Tltro funds ‘will make the cost burden of the Italian banks heavier’.
The increase in profitability and the decline in overall assets, following the slowdown in credit demand and the closure of Tltro positions, will help support capital ratios, which according to Moody’s ‘will remain broadly solid’. However, risk-weighted assets (RWA), which are the denominator in the calculation of the coefficients, are seen to increase, given that ‘weak economic activity increases the probability of bankruptcies and greater losses in the event of bankruptcies’.