Sophos : ABI Monthly report - Jenuary 2020

ABI MONTHLY REPORT1 - January 2020

(Main evidence)

CREDIT QUALITY

1. Net bad loans (i.e. net of the write-downs and provisions already made by the banks with own resources) in November 2019 stood at 29.6 billion euro, in decrease compared to 38.3 billion euro recorded in November 2018 (-8.7 billion euro equal to -22.7%), and 65.9 billion euro recorded in November 2017 (-36.3billion euro equal to -55.1%) (cf. Table 1). Compared to the highest level of net bad loans reached in November 2015 (88.8 billion), the decline exceeds 59 billion euro (equal to -66.7%).
2. The ratio of net bad loans to total loans stood at 1.70% in November 2019 (it was 2.22% in November 2018, 3.71% in November 2017 and 4.89% in November 2015).

LENDING INTEREST RATES

1. In December 2019, interest rates on new loans stood at record lows, and showed the following trends:
2. • the average rate on new business loans stood at 1.27% (1.29% in the previous month; 5.48% at the end of 2007);
   • the average rate on new loans for house purchasing stood at 1.47% (1.43% in November 2019, 5.72% at the end of 2007).
3. The average rate on total loans was 2.48% (2.49% the previous month and 6.18% prior to the onset of the crisis, at the end of 2007) (cf. Table 2).

BANK LENDING PERFORMANCE

1. In November 2019, following a drop in the demand for loans- despite interest rates remaining at historical lows - loans to non-financial corporations posted a 1,9% yoy decrease.
2. Still with regard to November 2019, growth in the mortgage market is confirmed. The total outstanding loans for house purchase posted a +2.5% yoy increase.

1 The ABI monthly report makes available a series of quantitative information before any other survey regarding the same data. This is possible because the banks themselves have produced this information.

1

7. The data at 31 December 2019 show that loans to households and non- financial corporations were slightly up yoy by +0.3%. This result is derived from estimates based on data published by the Bank of Italy relating to loans to households and non-financial corporations (calculated including loans that have been securitised and net of variations unrelated to transactions, e.g. changes due to fluctuations in exchange rates, value adjustments or reclassification) (cf. Table 3).

CUSTOMER FUNDING TREND

8. In Italy, deposits (current accounts, certificates of deposit, repurchase agreements) increased in December 2019, by over 83 billion euro compared to the previous year (an increase of +5.6%, yoy), while medium and long term funding, i.e. through bonds, remained stable over the last 12 months. Total funding (deposits from resident customers and bonds) grew by +4,8% in December 2019 (cf. Table 4).

INTEREST RATES ON DEPOSITS

9. In December 2019, the average interest rate on total bank funding from customers (the sum of deposits, bonds and repurchase agreements in euro from households and non-financialcorporations) in Italy stood at 0.58% (0.58% in the previous month as well) as a result of:

• the rate charged on deposits (current accounts, savings deposits and certificates of deposit), equal to 0.37% (0.37% in the previous month as well);
• the rate on repurchase agreements, which stood at 1.40% (1.49% the previous month);
• the outstanding bond yield, equal to 2.15% (2.19% in November 2019; cf. Table 5).

SPREAD BETWEEN THE LENDING RATE AND DEPOSIT RATE

10.The spread between the average lending rate and the average rate on household and non-financial corporations funding in Italy remains at particularly low levels, at 190 basis points, in December 2019 (192 basis points in the previous month) showing a sharp decrease over the more than 300 basis points prior to the onset of the crisis (335 basis points at the end of 2007).

2

Table 1

Bad loans in the Italian banking sector

	Net bad loans1	Net bad loans on	Net bad loans on
	capital and
	total lending2
			reserves
	M €	% figures	% figures
Nov-17	65.914	3,71	14,97
Dec-17	64.093	3,70	14,64
Jan-18	59.379	3,42	13,37
Feb-18	54.542	3,16	12,37
Mar-18	52.791	3,04	11,90
Apr-18	50.866	2,96	11,56
May-18	50.821	2,93	11,73
Jun-18	42.787	2,48	10,47
Jul-18	40.126	2,32	9,92
Aug-18	40.490	2,36	10,11
Sep-18	40.221	2,34	10,05
Oct-18	38.256	2,26	9,60
Nov-18	38.269	2,22	9,77
Dec-18	31.873	1,85	8,38
Jan-19	33.512	1,93	8,81
Feb-19	33.640	1,95	8,88
Mar-19	31.706	1,84	8,45
Apr-19	32.570	1,87	8,70
May-19	32.588	1,87	8,73
Jun-19	31.834	1,85	8,57
Jul-19	31.949	1,83	8,58
Aug-19	32.330	1,86	8,78
Sep-19	30.685	1,77	8,28
Oct-19	31.094	1,78	8,25
Nov-19	29.570	1,70	7,98

1. Entry into force of the new regulatory statistic reporting requirements, starting in December 2008, determined a discontinuance of the historical series of net bad loans (at realisable value) due to the new reporting criteria for write-downs.
2. The figure for lending includes existing loans and net bad loans.
3. Before write-downs.

Source: Data processed by the Ufficio Studi ABI on data of the Bank of

Italy.

3

			Table 2
		Italy: bank interest rates on lending and benchmark yields
			(Monthly average - % figures)
	Bank interest rates on loans in euro to households and			Interbank rates	3-Month interbank rates
	non-financial corporations in Italy
			for the Eurozone
		Of w hich: to non-	Of w hich: to		Benchmark
		households for
	Total1	financial		rate ECB2	3-Month	10-year
	(amounts)	corporations	the purchase of			USA		Japan	UK
	houses			Euribor	IRS
		(new business)
		(new business)
Dec-14	3,62	2,57	2,83		0,05	0,08	0,90	0,25		0,18	0,56
Dec-15	3,25	1,92	2,50		0,05	-0,13	0,94	0,54		0,15	0,58
Dec-16	2,85	1,54	2,02		0,00	-0,32	0,73	0,98		0,06	0,37
Dec-17	2,69	1,50	1,90		0,00	-0,33	0,83	1,61		0,06	0,52
Dec-18	2,55	1,47	1,89		0,00	-0,31	0,85	2,79		0,05	0,90
Jan-19	2,58	1,47	1,95		0,00	-0,31	0,77	2,78		0,04	0,92
Feb-19	2,59	1,51	1,91		0,00	-0,31	0,67	2,68		0,03	0,88
Mar-19	2,58	1,42	1,85		0,00	-0,31	0,57	2,61		0,03	0,84
Apr-19	2,59	1,46	1,86		0,00	-0,31	0,52	2,59		0,05	0,82
May-19	2,57	1,43	1,85		0,00	-0,31	0,44	2,53		0,05	0,80
Jun-19	2,56	1,35	1,77		0,00	-0,33	0,24	2,40		0,04	0,78
Jul-19	2,54	1,37	1,69		0,00	-0,37	0,12	2,29		0,04	0,77
Aug-19	2,52	1,26	1,70		0,00	-0,41	-0,20	2,16		0,04	0,76
Sep-19	2,52	1,26	1,44		0,00	-0,42	-0,14	2,13		0,01	0,77
Oct-19	2,51	1,31	1,40		0,00	-0,41	-0,03	1,98		0,01	0,78
Nov-19	2,49	1,29	1,43		0,00	-0,40	0,08	1,90		0,02	0,79
Dec-19	2,48	1,27	1,47		0,00	-0,40	0,13	1,91		0,02	0,79

Notes: for bank rates, latest month of SI-ABI estimates.

(1) Weighted average rate

(2) End of period data

Source: Data processed by the Ufficio Studi ABI on data of the Bank of Italy and SI-ABI

4

Table 3

Lending of the banks in Italy (except interbank) *

		Total lending	Private sector *		Of which: to households and non-financial
		Private sector and PA *					corporation
		M €	yoy (1)	M €	yoy (1)		M €	yoy (1)
	Dec-17	1.762.502	1,5	1.501.941	1,8	1.355.927	1,4
	Jan-18	1.775.405	2,3	1.511.089	2,7	1.372.142	2,3
	Feb-18	1.765.837	2,0	1.501.012	2,4	1.362.595	1,9
	Mar-18	1.773.632	2,0	1.506.517	2,4	1.363.905	1,9
	Apr-18	1.771.809	2,4	1.506.889	3,0	1.367.669	2,5
	May-18	1.768.607	1,9	1.504.315	2,5	1.366.049	1,9
	Jun-18	1.745.127	1,7	1.481.510	2,4	1.332.641	1,6
	Jul-18	1.743.179	2,0	1.478.259	2,5	1.335.127	1,9
	Aug-18	1.727.606	1,8	1.465.443	2,6	1.324.218	1,9
	Sep-18	1.729.206	1,9	1.467.972	2,9	1.323.036	2,3
	Oct-18	1.723.141	1,7	1.464.139	2,7	1.322.807	2,1
	Nov-18	1.726.546	1,4	1.467.427	2,3	1.327.921	1,8
	Dec-18	1.719.817	1,9	1.455.348	2,0	1.304.752	1,9
	Jan-19	1.715.536	1,0	1.448.786	1,0	1.305.859	0,8
	Feb-19	1.710.699	1,0	1.445.802	1,2	1.304.187	1,1
	Mar-19	1.703.482	0,8	1.436.551	0,9	1.292.242	0,8
	Apr-19	1.702.492	0,8	1.436.200	0,8	1.296.493	0,8
	May-19	1.702.097	1,0	1.435.817	1,0	1.296.235	1,0
	Jun-19	1.701.819	0,5	1.436.097	0,4	1.289.618	0,7
	Jul-19	1.704.869	0,7	1.438.009	0,7	1.294.396	0,9
	Aug-19	1.690.020	0,8	1.421.991	0,5	1.281.049	0,7
	Sep-19	1.695.195	0,9	1.426.034	0,5	1.280.037	0,6
	Oct-19	1.687.661	0,8	1.420.113	0,3	1.277.514	0,4
	Nov-19	1.682.285	0,4	1.417.275	0,1	1.274.671	0,0
	Dec-19	1.681.037	0,0	1.416.160	0,0	1.274.000	0,3

Notes: latest month of SI-ABI estimates.

* Including gross bad loans and reverse repurchase agreements. Private sector: non-financial corporations, consumer and producer households, non-profit entities, other financial institutions, insurance companies and pension funds. The data are netted against central counterparties' operations.

(1)Variations recalculated to include loans not recognised in the bank balance sheets in that they were securitised and are net of variations not related to the transactions (e.g. variations resulting from exchange rate fluctuations, value adjustments or reclassifications).

Source: Data processed by the Ufficio Studi ABI on data of the Bank of Italy and SI-ABI.

5

Table 4

Deposits and bonds from bank customers in Italy

	Funding (deposits and	Resident customers'	Bonds2
	bonds)		deposits1
	M €	yoy	M €		yoy	M €		yoy
Dec-17	1.727.922	0,0	1.450.799		4,1	277.123		-17,0
Jan-18	1.712.537	0,8	1.442.488		5,2	270.049		-17,6
Feb-18	1.710.268	0,2	1.443.483		5,1	266.785		-20,1
Mar-18	1.726.665	1,1	1.461.328		5,6	265.337		-18,1
Apr-18	1.724.349	-0,1	1.461.808		4,0	262.541		-18,1
May-18	1.728.949	1,2	1.469.907		5,5	259.042		-17,6
Jun-18	1.739.930	2,1	1.485.635		6,6	254.295		-18,2
Jul-18	1.713.213	0,3	1.461.046		4,6	252.167		-18,7
Aug-18	1.713.777	0,3	1.463.055		4,2	250.722		-17,5
Sep-18	1.734.338	0,8	1.488.157		4,5	246.181		-16,7
Oct-18	1.716.145	0,2	1.474.142		3,5	242.003		-16,3
Nov-18	1.700.005	-0,1	1.463.511		3,2	236.494		-17,0
Dec-18	1.731.854	0,2	1.488.865		2,6	242.989		-12,3
Jan-19	1.724.410	0,7	1.481.683		2,7	242.727		-10,1
Feb-19	1.728.618	1,1	1.488.763		3,1	239.855		-10,1
Mar-19	1.759.246	1,9	1.516.211		3,8	243.035		-8,4
Apr-19	1.759.409	2,0	1.518.171		3,9	241.238		-8,1
May-19	1.765.205	2,1	1.525.731		3,8	239.474		-7,6
Jun-19	1.782.445	2,4	1.543.012		3,9	239.433		-5,8
Jul-19	1.785.529	4,2	1.542.207		5,6	243.322		-3,5
Aug-19	1.804.842	5,3	1.562.711		6,8	242.131		-3,4
Sep-19	1.799.003	3,7	1.556.663		4,6	242.340		-1,6
Oct-19	1.806.568	5,3	1.565.537		6,2	241.031		-0,4
Nov-19	1.824.503	7,3	1.583.126		8,2	241.377		2,1
Dec-19	1.814.970	4,8	1.571.970		5,6	243.000		0,0

Notes: latest month of SI-ABI estimates.

(1)Deposits from ordinary private resident customers, excluding MFI and Central Public Authorities. It includes current accounts, preestablished term deposits, notice refundable deposits and repurchase agreements. The data are netted against operations with central counterparties, deposits with agreed maturity connected with receivables assignment transactions.

1. Recorded at nominal value and expressed in euro, they include subordinated liabilities and do not include bonds purchased from banks. They refer to resident and non-resident customers.
   Source: Data processed by the Ufficio Studi ABI on data of the Bank of Italy and SI-ABI.

6

Table 5

Italy: interest rates for investors

(Monthly average - % figures)

		Bank interest rates: households and non-financial corporations	Gross yield of Government bonds in	Yield at issue of postal
			(ESCB harmonised statistics)				the secondary market			deposits
														Ordinary	Average	Average
	Deposits in euro	Deposits in CA	Repurchase		Bonds	Funding (deposits,							savings	annual	annual
	in euro	agreements		repos and bonds)	BOT		CCT	CTZ		BTP	books	yield on	yield on
	(amounts)			(amounts)
		(amounts)	(amounts)		(amounts)1								5th year	20th
																year
Dec-14	0,73		0,29	1,14		3,16	1,29	0,28		0,87	0,49		2,04	0,25	1,25	3,50
Dec-15	0,52		0,16	1,21		2,94	1,01	-0,06		0,32	0,01		1,51	0,15	0,30	2,50
Dec-16	0,41		0,09	0,56		2,74	0,80	-0,29		0,33	-0,11		1,73	0,01	0,15	0,60
Dec-17	0,38		0,06	0,71		2,60	0,70	-0,50		0,14	-0,32		1,66	0,05	0,40	2,50
Dec-18	0,36		0,05	1,66		2,39	0,61	0,12		1,70	0,46		2,67	0,25	0,65	2,85
Jan-19	0,36		0,04	1,69		2,39	0,61	0,01		1,47	0,30		2,52	0,25	0,65	2,85
Feb-19	0,36		0,05	1,68		2,33	0,59	0,03		1,64	0,36		2,60	0,25	0,65	2,85
Mar-19	0,34		0,05	1,82		2,32	0,58	-0,08		1,44	0,18		2,43	0,25	0,30	2,25
Apr-19	0,33		0,05	1,74		2,38	0,58	-0,06		1,47	0,22		2,37	0,25	0,30	2,25
May-19	0,38		0,05	1,71		2,37	0,62	-0,04		1,62	0,34		2,44	0,25	0,30	2,25
Jun-19	0,38		0,05	1,73		2,37	0,61	-0,09		1,48	0,23		2,18	0,05	0,05	1,50
Jul-19	0,37		0,04	1,56		2,36	0,61	-0,20		0,96	-0,01		1,66	0,05	0,05	1,50
Aug-19	0,37		0,05	1,72		2,35	0,60	-0,20		0,95	0,01		1,47	0,05	0,05	0,90
Sep-19	0,37		0,05	1,47		2,32	0,60	-0,28		0,44	-0,21		1,04	0,05	0,05	0,90
Oct-19	0,37		0,04	1,47		2,23	0,59	-0,27		0,33	-0,18		1,07	0,05	0,05	0,90
Nov-19	0,37		0,04	1,49		2,19	0,58	-0,22		0,48	-0,05		1,30	0,05	0,05	0,90
Dec-19	0,37		0,04	1,40		2,15	0,58	n.d		n.d	n.d		n.d	0,05	0,05	0,90

Note: for banking rates latest available month for SI-ABI estimates.

(1) Weighted average rate

Source: Data processed by the Ufficio Studi ABI on data of the Bank of Italy and SI-ABI

7