Italian finance stronger, faces global risks
Banca d'Italia Deputy Governor Sergio Nicoletti Altimari reviewed the Italian financial system's transformation, noting its increased resilience and innovation. He highlighted emerging global risks and the need for deeper European financial integration.
A decade of banking transformation
Over the past decade, Italian banks underwent a profound transformation, moving from severe strains during the sovereign debt crisis to today's stronger conditions.
An intensive 'repair' process, supported by the Single Supervisory Mechanism (SSM) and Basel III standards, significantly reduced non-performing loans (NPLs) from a 2015 peak of around 350 billion euro, more than halving them by 2019.
Capital ratios improved, with the CET1 ratio now almost 16 percent, and liquidity buffers increased.
Profitability has remarkably improved, with return on equity close to 14 percent since 2023, driven by rising interest rates, better asset quality, and efficiency gains from digitalization.
Branches declined by 35 percent and staff by 12 percent.
Consolidation also progressed, reducing the number of banks from 500 in 2015 to 129 today, enhancing resilience.
Non-banks, tariffs, and energy risks
Italy's financial system remains bank-centred, with non-bank financial intermediaries' (NBFIs) assets less than half of the US.
Fragmentation of European capital markets limits scale, leading to capital outflows.
Foreign NBFIs, especially hedge funds, are active in government bond markets, accounting for about 30 percent of transactions, which could be a source of volatility.
Italian private capital markets are small, at 2 percent of GDP, but venture capital investment shows growth potential.
While domestic risks are limited, global risks are increasing.
US tariffs on Italy's second-largest export market and the Middle East conflict's impact on energy imports (10% oil, 11% gas from region) pose significant economic threats.
GDP is projected to grow 0.5 percent this year and next, with inflation peaking at 2.6 percent.
High public debt remains a key vulnerability.
Unfinished business for Europe
Italy's financial system has indeed come a long way, demonstrating remarkable resilience against past crises and embracing innovation.
However, the speech underscores that this stability is built on a foundation still challenged by fragmented European capital markets and persistent public debt.
True long-term prosperity hinges on the political will to complete the banking union and create a common safe asset, which remains an urgent, unfinished European project.