Abi, the effects of the ECB tightening are starting to show themselves on the economy – Corriere.it

The yield on new issues of fixed-rate bonds increased to 4.44% from 1.31% in June 2022. The spread between funding and loans narrowed which, after the start of the ECB hikes, pushed strongly revenues and profitability of banks in recent months. As stated in the monthly Abi report, the banks have adjusted the yields of new deposits and bonds upwards under the pressure of the market.

Banks are adjusting to market conditions yields on new fixed-term deposits and on bonds, with a sharp rise. what the ABI affirms in the monthly report where we read how the rate charged on new deposits in May 2023 increased to 3.21% from 0.29% in June 2022 (the last month before the ECB rate hikes), with an increase by 292 basis points. The yield on new issues of fixed-rate bonds increased to 4.44% from 1.31% in June 2022. Considering the previous stock, the rate on total deposits, including current accounts 0.68% (0. 32% in June 2022).

Rates on new bank loans are still on the rise. In May, according to the monthly ABI report (and therefore before the latest ECB increase in recent days), the average rate on new transactions for the purchase of homes was 4.24% (2.05% in June 2022, with an increase by 219 basis points, it was 5.72% at the end of 2007). In the same month, the average rate on new business loan transactions was 4.90% (1.44% in June 2022, with an increase of 346 basis points, from 5.48% at the end of 2007).

The most recent data, relating to the performance of both the euro area economy and the Italian one, indicate that the effects of the restrictive monetary policy launched by the ECB a year ago are manifesting themselves. what can be read in the preamble to the monthly ABI report which cites as examples the recession in the euro area and the reduction of industrial production in Italy. In particular, the association points out that in May, loans to businesses and households fell by 1.1% compared to a year earlier (they grew by 3.2% in June 2022), while in April 2023 they had recorded a decline by 0.3%, when loans to businesses had decreased by 1.9% and those to households had grown by 1.4%. In terms of deposits, investments in securities held with banks rose by over 190 billion between April 2022 and April 2023, of which 107.3 billion attributable to households, 28.8 to businesses and the remainder to other sectors.

Medium and long-term funding, through bonds, grew compared to a year earlier (+11.9%). Deposits alone, in various forms, also fell in May 2023 by 3.7% compared to a year earlier. Net non-performing loans (i.e. net of write-downs and provisions already made by the banks with their own resources) in April 2023 amounted to 15.2 billion euro, an increase of around 1 billion compared to December 2022, and an increase of around 70 million compared in March 2023. Compared to the maximum level of net non-performing loans, reached in November 2015 (88.8 billion), the decrease of 73.6 billion. The rate charged by banks on current account deposits alone was 0.32% (0.02% a year earlier). The Abi affirms it in the monthly report where it reminds once again that the current account allows the use of a multitude of services and does not have an investment function. In the report, the ABI underlines the rise in the rates applied to the new fixed-term deposits and the new bonds.

The spread between deposits and loans is reduced which, after the start of the increases by the ECB, has strongly boosted the revenues and profitability of banks in recent months. As stated in the monthly Abi report, the banks have adjusted the yields of new deposits and bonds upwards under the pressure of the market. In this way the margin (spread) on new business (calculated as the difference between the rates on new loans and new funding) with households and non-financial companies, in May 2023, is 155 basis points (slightly higher than the 142 points in June 2022, before the official interest rate hike). The trend will affect the financial statements of banks in 2023 which can still count on the rates applied to the stock of outstanding deposits (the decline in deposits towards the most profitable financial products is in any case in progress) and on the other components of revenues and profits.

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