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Bank of Italy: “Moderate risks to financial stability”

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«In Italy, the risks to financial stability are moderate; medium-term vulnerabilities persist, linked above all with the possibility that economic growth, currently solid, will lose intensity ». The second 2021 report on Financial Stability of the Bank of Italy confirms a positive climate for banks, businesses and households, with some potential critical issues, for example in the field of household debt, whose savings rate, while remaining high, is starting to reduce due to a greater propensity to consume. The Eurosystem’s public and private bond purchase programs contribute to maintaining smooth financing conditions on the markets, including in the government bond sector.

The gradual recovery of the real estate market continues, in line with the evolution of the economic situation. The risks to financial stability deriving from this sector remain contained, “unlike what is observed in other European countries, where property prices are growing markedly and there are signs of their overvaluation.

Moderate increase in household debt (mortgages and consumer credit)

The risks associated with the financial situation – as mentioned – of households remain limited overall. The cyclical improvement and the support measures have translated into an overall growth in savings and financial wealth, although not homogeneous among the different categories of households. Debt, which has risen moderately – there has been growth in mortgages and consumer credit – remains low in international comparison; the ability to repay loans is good, also thanks to low interest rates; the share of debt held by financially vulnerable households is relatively low.

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Business balance sheets improve

The recovery in profitability, the abundant liquidity accumulated during the pandemic period and the favorable conditions for access to credit contribute to a significant improvement in corporate balance sheets. Thanks to the solid recovery of the economy, the gradual reduction of public support measures is taking place without inducing tensions. Risks could derive from a less favorable evolution of the economic situation and profitability of companies than is currently expected.

Public interventions have contained pandemic effects on credit quality

Government interventions in support of households and businesses and the economic recovery have helped to mitigate the effects of the pandemic on the quality of bank assets; the deterioration rate of loans is stable at historically low levels and the disposals of impaired loans continue. However, performing loans subject to concession measures (forborne exposures) increased, especially among borrowers who benefited from moratoriums. It is important that banks pay particular attention to assessing the repayment capacity of borrowers and the resulting provisioning decisions. “Looking ahead, a factor of vulnerability for intermediaries may derive from the growing digitalization of financial services and the greater use of outsourcing of activities, which increase exposure to cyber risks and those for business continuity. “The awareness of these new risks on the part of intermediaries as well as their integration into the governance and control systems are fundamental for an effective law enforcement action”.

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