Rome Italy is deeply in crisis: the country that is most severely affected by the corona virus in Europe with more than 23,000 deaths is experiencing a hard recession due to the lockdown and the fact that production has been stopped for more than a month.
The International Monetary Fund has just estimated a slump in growth of 9.1 percent, significantly more than the forecast for the euro zone of 7.5 percent. Italy also has large debts and therefore less financial scope. “The collapse is violent,” says top banker Roberto Nicastro. “The crisis can be overcome at the beginning of 2021 at the earliest.”
Nicastro is one of the most renowned bankers in Italy. He used to be director general of Unicredit, today he is Vice President of UBI Banca and also a European advisor to the financial investor Cerberus.
The top banker warns: Now Italy has the choice. “Either we can get the relief measures started quickly, then we can classify the crisis as temporary. Or we wait. ”But that is the worse alternative. Then there would be irreparable damage to the country.
The government’s first aid package for the real economy in early April has a volume of EUR 400 billion and is designed to bring liquidity to companies. Since then, there has been a flood of applications for emergency loans and credit deferrals at the banks. But the transmission has problems. So much so that the central bank Banca d’Italia had to specifically write to the financial sector to “intensify efforts” to facilitate access to credit in this phase of the national emergency.
Italian banks in a dilemma
The risk of default is too great for many banks. Credit losses are impending, even though the state takes over a large part of the guarantees. Because these are limited to 2020, as Nicastro explains. In addition, the state only guarantees 100 percent for smaller companies with loans of up to EUR 25,000. “With the larger ones, the bank is involved and will be careful not to give the money to those who cannot repay it.”
Nicastro sees the domestic banks in a dilemma: “If we give the money quickly so that the companies can start again quickly, we risk criminal problems. Or we take the strict regulations into account and accept a time delay. ”
The banks would at least need the opportunity to identify attempts at deception, the Milan financial expert says. After all, there are at least 1.5 million customers who have requested loans and around one million customers who have asked their bank for an advance payment for short-time benefits.
In March, the ECB’s banking regulator approved changes to the equity guidelines to help banks. This should help in particular the money houses in the southern European countries, many of which are still groaning under bad credit from the 2008 financial crisis.
“Of course, the banks know very well that this and the postponement of the stress tests are only temporary help,” Nicastro puts into perspective. “Everyone is aware that there is now a buffer until the crisis is over.” The rules themselves would not be changed, it was about provisional measures.
Nicastro, however, does not see the danger of a systemic banking crisis in Italy due to growing loan defaults and melting yields. The financial industry could survive the corona pandemic and its effects.
Recapitalization and reduction of contaminated sites
This also applies to problem houses like Monte dei Paschi or Banca Carige. The banks have been recapitalized. The domestic institutes have also made good progress in dismantling the contaminated sites. “The non-performing loans fell from the peak in 2015/16, when they were at twelve, thirteen percent, to four percent, which is a significant improvement.” In addition, there are around 50,000 employees downsizing in the industry to date, and without Redundancies.
Nicastro does not consider mergers or acquisitions to be urgent, not even in the face of the corona crisis. Because size is not the decisive factor. “What matters is technology and competence.”
In Italy, the most innovative bank is not one of the big ones, but Banca Sella, an old private bank, number 16 in Italy. And the greatest profitability is achieved by Credito Emiliano, the country’s 12th largest bank. “It’s about good management. But that also applies in Germany, I think of N26 and on the other side ING-Diba. These are not big banks, but they grew fastest. ”
Nicastro is skeptical about the EU summit on Thursday. “The logic should lead to success, we are constructive and optimistic, but I don’t know whether that will be enough.” The use of the European Security Mechanism EWS “without troika” and the introduction of corona bonds, which are now being disputed Elements for political rhetoric in Italy with a view to voters.
“What we need is a small Marshall Plan, so we share the cost,” says Nicastro. Like others in Italy, he calls for uniform aid programs and not just emergency loans. “I believe that there is an objective interest in the Europe system to ensure that the necessary investments are made to deal with the crisis.”
A country like Italy cannot get out of the emergency alone and quickly. “It is clear that the aid packages are not enough for Italian companies, that more money is needed.” Because Italy cannot raise five percent of the gross domestic product like Germany or like the USA eleven percent, but only 1.3 percent.
According to Nicastro, the more closed the European Union is to the corona crisis, the better the second virus can be combated: the growth of populist forces. “We cannot afford a delay.”
More: Italian Prime Minister Conte continues to insist on euro bonds.