Fabio Panetta: Disinflation in the euro area and the opportunities for the Italian economy

Address by Mr Fabio Panetta, Governor of the Bank of Italy, at the conference "The Cooperative Banking Group: opportunities and challenges of a new banking model", organised by the ICCREA Cooperative Banking Group to mark its 60th anniversary, Rome, 30 November 2023.

The views expressed in this speech are those of the speaker and not the view of the BIS.

The financial system is a key infrastructure of any modern advanced economy. It makes it possible to finance investment and growth, putting today's wealth to work for tomorrow's prosperity.

Not all projects can be successful, and it is up to financial intermediaries and markets to select, diversify and manage risks in order to direct resources towards the best of them.

Banks are playing a pivotal role at a time of heightened uncertainty with technological, climatic and geopolitical changes affecting global economic activity and trade. During this difficult transition, the efficient allocation of credit by banks is essential in order to support the much needed transformations, digitalisation and decarbonisation of Italian firms. This is particularly true for small and medium-sized enterprises, which receive most of their external financing in the form of bank loans.

Their close relationships with customers and their understanding of local economies give cooperative credit banks (banche di credito cooperativo, BCCs) a competitive advantage in financing smaller companies. The reform that led to the creation of the cooperative banking groups few years ago has not eroded this advantage: currently BCCs provide one-fifth of total loans to small businesses, compared with much smaller shares of other categories of loans.

Overall, the Italian banking system is in a good profitability and capital position. Thanks also to the public policies implemented in recent years at both European and national levels, it has been able to recover from the economic fallout of the pandemic and the invasion of Ukraine without great difficulty. The ratio of non-performing loans to total loans has been declining continuously since its peak in 2015 (Figure 1). Profitability has risen to levels not seen since before the global financial crisis, driven by the increase in interest income and the decline in loan loss provisions. The CET1 ratio reached a historical high of 15.6 per cent.