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Italian Bank Loans to Firms Decline as Funding Costs Rise: Bank of Italy Report

In its latest quarterly bulletin, the Bank of Italy revealed that bank loans to companies in Italy experienced a significant decline between November and February, as the demand weakened and interest rates rose. The bulletin stated that loans to the non-financial sector fell overall by 3.2% year-on-year in the three months to February, with credit to companies dropping by 7.5%.

The contraction in lending to firms was attributed to higher funding costs for banks and more stringent lending criteria, which affected all sectors, particularly the service sector. As a result, the average interest rate on new bank loans to firms increased by 60 basis points to 3.6% between November and February.

Families in Italy also saw a slight decrease in loans over the same period, with loans to families edging down by 0.1% year-on-year. The demand for house mortgages declined, contributing to the decrease.

Despite these challenges, the bulletin estimated that the Italian economy likely experienced slight growth in the first quarter of this year compared to the previous three months. This follows a 0.1% shrink at the end of last year.

Bank of Italy Report Highlights Struggle in Lending Sector

The Bank of Italy’s quarterly bulletin sheds light on the lending sector’s struggle in the country. The decrease in lending to firms and families reflects the challenges that banks and borrowers face in obtaining financing in the current market conditions. With funding costs rising and lending criteria becoming stricter, businesses and individuals may face difficulty securing loans to support their operations or investments.

Bank of Italy

Higher funding costs can also affect the profitability of banks and limit their ability to lend to customers. As a result, it’s crucial for policymakers and financial institutions to work together to ensure that lending remains accessible to support economic growth.

The Bank of Italy’s report highlights the struggles in Italy’s lending sector, particularly with the decline in loans to companies and families. The rise in funding costs and stricter lending criteria have affected all sectors, particularly the service sector, which reflects a broader economic slowdown. However, the estimated slight growth in the first quarter of this year is a positive sign, and policymakers and financial institutions must work together to ensure lending remains accessible to support economic growth in the country.

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