SME loans, rather than mortgages, maybe a source of pain for Italian banks during the COVID-19

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According to industry analysts, the freeze on mortgage payments in Italy in the aftermath of the coronavirus pandemic might be good protection for both banks and borrowers, with small and mid-sized businesses being the most vulnerable.

On March 1, Vice EconomyMinister LauraCastelli informed a local radio station that the government was considering suspending mortgage payments to reduce the financial burden of COVID-19, a coronavirus-related sickness. At the time of publishing, neither the government nor the Finance Ministry had issued an official declaration, and neither had responded to a request for comment. According to the European Central Bank (ECB), Italy has EUR383.23 billion in outstanding household mortgages.

A few of the biggest banks like UniCredit SpA and Intesa Sanpaolo SpA have announced that they’ll grant a loan repayment break for mortgage borrowers who are struggling, go to Bridge Payday, and try for free.

The entire nation is under lockdown for over two weeks.The government has reported more than 31500 cases of COVID-19 as well as nearly 2,500 death since the early morning of the 18th of March.

According to one expert, the repercussions are more severe for SMEs, which are more likely to fail, putting pressure on lenders such as Banca Monte Dei Paschi di Siena SpA, which has lower levels of profitability.

The state of help?

According to MarcoTroiano, executive director and deputy head of Scope Ratings’ financial institution ratings, it’s critical not to read too much into the deputy minister’s words on mortgage relief.

During an interview, he stated, “This was simply a comment, not an official pronouncement, but it appears like some type of forbearance is coming.”

The underlying profitability of banks, as well as their capital cushion, is a more reliable indicator of who would be most affected by the wave of mortgage suspensions, according to Troiano.

He added that banks that have low profits are especially vulnerable.

According to Market Intelligence statistics, the average return on equity for the whole year of 2019 was 11.27 percent. Banca Popolare dell’Alto Adige SpA comes in second with a negative 10.65 ROAE -10.65 percent, followed by Unione di Banche Italiane SpA with a ROAE of 3.04 percent.

Troiano claimed that even during times of crisis, European homeowners have generally had a great track record of sustaining their mortgage obligations.

“The majority of folks will remain to pay their initial mortgage,” stated the expert.

AngelaGallo, a finance lecturer at Cass Business School in London, believes that the government, rather than banks, will bear the financial burden of a break on mortgages.

According to Gallo, the government has a fund set up to help struggling mortgage debtors if they meet certain requirements.

This fund is called Fondo de solidarity for the suspension Delle rate mutui primary casa allows the suspension of mortgages for as long as 18 months for the principal residence of those who earn less than EUR30,000 annually for loans up to EUR250,000.

The biggest benefit for banks of an entire mortgage moratorium, according to Gallo, would be “enabling them to retain/maintain a good relationship with their clients.”

Because Italian banks have stronger capitalization than they had during the 2008 global financial crisis, they have a better chance of being able to assist their consumers, according to Gallo.

Troiano predicted that mortgage loans will have a “good influence on the underlying customer.”

“However, as a bank, you must do so with some selectivity because you don’t want to promote strategic defaulters,” the expert explained. added.

The U.K., Royal Bank of Scotland Group PLC, and Lloyds Banking Group PLC have stated that they will provide relief to mortgage holders suffering from the pandemic.

SME on line

However, SMEs tend to be more likely to fail and pose an even bigger risk to lenders, compared with mortgages. Troiano said.

Banks might also think about helping SMEs.

“Banks will want to ensure that a liquidity crisis does not evolve into nonperformance,” said the banker.

Intesa announced on March 7 that it has made EUR5 billion in funding available for families and small-sized businesses who are experiencing an economic crisis and assistance for mortgage holders.

According to the most recent statistics available from the Organization for Economic Cooperation and Development, Italy’s outstanding loans to SMEs were EUR170 billion at the end of 2017. (OECD).

According to the European Commission, small and medium-sized businesses in Italy account for 78.5 percent of all jobs, compared to 66.4 percent throughout the EU. Despite their enormous economic importance, they only account for 17.7% of the country’s total business loans of EUR958 billion, according to OECD estimates.

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