Graphic: Italy Inc's cash stash harbours post-pandemic hope

Kisses From Italy

29/03/2021 15:01

By Stefano Bernabei and Valentina Za
    MILAN, March 29 (Reuters) - Italian businesses gobbled up
state-guaranteed loans as the pandemic ravaged the country's
economy - only to place a significant portion of that money with
the country's lenders.
    Those cash reserves could fuel the post-pandemic recovery
and limit the damage to banks' balance sheets once the
government unwinds support measures for businesses.
    In the 10 months through January, Italian companies borrowed
around 140 billion euros ($165 billion) guaranteed by the state.
    When excluding money used to refinance loans maturing in the
period, net new lending to companies totalled around 70 billion
euros between March and January.
    Corporate deposits increased by more than 90 billion euros
over the same period, the Bank of Italy said.
    By comparison, between March 2019 and January 2020, net 
lending was a negative 10 billion euros as the value of expiring
loans outweighed new debt. Deposits increased by around 20
billion.    
    
    As the pandemic stops home-bound consumers from spending and
companies face too much uncertainty to invest, the increase in
bank deposits is a global phenomenon.
    Within Europe, the trend is particularly pronounced in
Italy, where debt holiday schemes are still in place and could
be extended and companies are still taking out state-backed
loans.
    Corporate deposits in Italy were up 32% in January versus
the previous year, above France's 28% and an average 20%
increase for the euro area as a whole, Italian banking
association ABI said earlier this month.
    
    
    "The level reached by corporate deposits in Italy bears
significance," Paola Sabbione, Barclays' co-head European banks'
equity research, said. "Some companies have very good cash
positions. This may have positive implications for credit
quality going forward."
    The end of debt holidays is expected to unleash
bankruptcies, but market projections on how much problem loans
will rise vary, with a KPMG report this month flagging a 50 to
100 billion euro range.
    
    
    The cash businesses keep in their bank accounts could play
an important role in determining the extent of the credit
problems they face once debt payments resume.
    It also has a bearing on the level of corporate investments
that Rome hopes will feed the recovery.
    "When COVID struck, the cash position of companies was at a
record high. During the pandemic they borrowed more, using state
guarantees, for precautionary purposes," Stefano Del Punta,
chief financial officer at Italy's No.1 bank Intesa Sanpaolo,
said. 
    
    "Deposits went up while there is a significant backlog of
investments. Once the recovery starts, that money could finally
find its way into investments, hopefully already in the second
half of 2021, when we should also see the first effects of the
Recovery and Resilience facility."  
    ($1 = 0.8493 euros)

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Italian banks' gross NPE ratio    https://tmsnrt.rs/3ckTMHn
Italian bank loans to companies    https://tmsnrt.rs/3dewP8e
bank deposits    https://tmsnrt.rs/2NSJ958
Deposits over loans    https://tmsnrt.rs/3lYdtYS
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 (Reporting by Stefano Bernabei and Valentina Za; Graphics by
Stefano Bernabei; editing by Barbara Lewis)
 ((valentina.za@thomsonreuters.com; +39 02 6612 9526;))