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The public debt held in the portfolio by Italian banks is at its lowest level in the last 4 years. The amount, equal to 632 billion, is slightly higher than the 628 billion held at the beginning of 2020, before Covid; the incidence, however, decreased from 25.7 to 22 percent. This variation can be easily explained by the significant increase in public debt that has occurred since the pandemic. The analysis of the relationship between government bonds held by banks and public debt is contained in a study carried out by the banking union Fabi.
Greater caution
«Over the course of these four years and three months, the banks’ attitude towards the purchase of Italian government bonds has changed and is oriented towards greater prudence, even if the banking sector remains a guarantee for the purchases of bonds issued from the Treasury – it is stated – the record was reached in April 2020, in full lockdown, when the banks reached, at the time with 687 billion, almost 28% of the total, while the highest peak, in absolute terms, was reached in June 2022 when there were more than 712 billion BOTs and BTPs in the banks’ portfolios.”
The impact of monetary policy
In reality, for the analysis of the trend of the consistency of the banks’ portfolios, the highly expansionary monetary policy decided during the pandemic should be taken into account, which brought with it measures aimed at the purchase of government bonds by the ECB but also operations of refinancing banks that used government bonds as collateral. Today, all this almost no longer exists: last Thursday the president of the ECB, Christine Lagarde, confirmed the central bank’s orientation to progressively reduce, until concluding by the end of the year, the purchase programs for the Covid emergency ( the PEPP plan).
Non-homogeneous panorama
For over a year now, credit institutions have slowed down their purchases of government bonds; even if in Italy there are some banks that continue to buy BTPs constantly and others have reduced, the panorama is therefore not homogeneous. The Fabi analysis highlights, on the other hand, that the total amount of government bonds in the banks’ portfolios began to reduce at the end of 2022, going from 688.9 billion at the end of the year to 650 billion in December 2023. Up to to 632.39 billion last March. «This decrease may be indicative of a risk reduction strategy on the part of the banks, probably in response to various economic, financial and political factors – observes the study – A more prudent attitude which, in any case, does not seem capable of having significant implications for the management of Italian public debt nor effects on the stability of the national banking system”.
Competition on liquidity
The reality is also that the reduction of the ECB’s refinancing plans and the increase in rates has started competition between banks and financial instruments for the collection of liquidity. There is less liquidity available for banks to invest in government bonds, on the one hand. On the other hand, however, there are savers who are significantly returning to government bonds attracted by the more interesting yields. For Fabi, the banks’ lower exposure to debt could protect them from “tensions on the financial markets and in particular from the consequences linked to the trend of the spread between Italian BTPs and German Bunds” linked to the tensions on the spread that followed the outcome of the European elections. In reality, the yield on 10-year BTPs, after a slight increase in the days following the ECB’s decision on Thursday, have fallen again.
