RPT-Fitch launches SME market review series - Italy

Fri Jan 10, 2014 5:16am EST

Jan 10 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has published the fourth report in a series under the banner 'SME Market Review', which provides an overview of the SME market in key European jurisdictions that are active in the SME securitisation sector.

In July 2013 the yearly annual negative growth rate of bank loans to Italian non-financial companies (NFCs) reached a record low for the second consecutive month of 4.1% compared to a less harsh contraction of 1.1% relating to bank loans granted to households. The spread charged by lending banks to their SME borrowers has reached record high levels of around 4% which mainly reflect the increase of financing costs faced by Italian banks as a result of the financial crisis (which began in September 2008) and the subsequent sovereign crisis (from summer 2011).

In terms of economic relevance, the overwhelming majority (99.9%) of enterprises active in the Italian economy (the third largest in Europe after the German and the French ones) are SMEs and they account for 81% of the workforce and 68.1% of the value added in Italy. Yet SMEs in Italy face an unfavourable business environment; in fact the 2013 World Bank Doing Business survey ranked Italy 30 out 31 OECD countries in the ease of doing business, with Italy faring poorly particularly in the areas of contract enforcement, tax payments, and getting credit.

As of July 2013 the stock of gross bad loans (sofferenze lorde) as a percentage of the overall balance of outstanding loans is equal to 11.3% for NFCs as compared to 6.0% for consumer households. The count-based new bad loan ratio is highest for NFCs and stands at 3.2%, while the corresponding amount-based figure is 4.5% and such a high level had not been seen since the historical peak recorded in the early 1990s when Italy went through a severe economic downturn. With Italy's debt equal to 127% of GDP in 2012, the second highest in the eurozone after Greece, the Italian government has had limited room to manoeuvre for releasing its austerity policies undertaken since the eurozone sovereign debt crisis started to hit Italy during the summer of 2011. Nevertheless some measures to support the Italian economy (and its backbone consisting of SMEs) have indeed been taken by the Italian government since 2009, including among others a moratorium scheme for SME's amortising loans and lease financing contracts, changes in the regulation and increased endowment of the Central Guarantee Fund which resulted in an unprecedented growth of its operations, and changes to the regulations of Cassa Depositi e Prestiti which is now allowed to use postal savings to fund medium-to-long term loans to banks which in turn on-lend the proceeds to Italian SMEs.

Link to Fitch Ratings' Report: SME Market Overview - Italy

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