Italy's less significant banks: general overview and supervision

On 30 June 2016, Italy’s less significant institutions (LSIs), directly supervised by the Bank of Italy within the framework of Europe’s Single Supervisory Mechanism (SSM), numbered 462, of which 355 were mutual cooperative banks (banche di credito cooperativo or BCCs). LSIs in Italy comprise about 8,700 branches and 74,000 bank employees, while the entire Italian banking system consists of 29,000 branches and 292,000 bank employees; LSIs account for 18 per cent of the banking system’s total assets. The average value of an LSI’s total assets came to just over €1 billion, against an average of €165 billion for significant institutions (SIs).

On the same date, the Common Equity Tier 1 (CET1) ratio for LSIs averaged 15.5 per cent, about 4 percentage points more than in 2011 (the CET1 ratio for SIs was 11.7 per cent, representing an increase of 3 percentage points on 2011). Non-performing loans (net of value adjustments) as a share of total loans (NPL ratio) averaged 12.5 per cent (it was 10.5 per cent for SIs). The coverage ratio averaged 43.6 per cent (46.6 per cent for SIs); however, among LSIs there was greater recourse to guarantees. The increase in the coverage ratio recorded on average by LSIs in recent years was starkly higher than that for SIs. In the first half of 2016, the profitability of LSIs, net of extraordinary effects, was in line with that of SIs. The cost-income ratio was substantially similar for LSIs and SIs.

In short, Italian LSIs were found to have a higher level of capital adequacy than SIs; other ‘vital parameters’, such as the quality of credit and profitability, appeared largely similar for both types of institution; some misalignments were attributable to structural differences. However, the analysis suggests a broadly stable outlook for LSIs, similar to that for SIs.

A number of well-known weak points, such as poor profitability and the high proportion of non-performing loans, also emerged for both categories of bank, which must accordingly take the requisite corrective measures starting with cost containment and the pursuit of greater efficiency. These actions must be more concrete, rapid and incisive among banks whose ‘bill of health’ is significantly below the average. Supervisory activity in these cases is more intense. Some are nearing resolution, others are still open. With regard to BCCs, the recent reform of this banking sector is a fundamental step in remedying some of the limits of this category (first and foremost, the difficulty in increasing the share of equity).