Financial Stability Report No. 1 - 2017

Global economic growth reduces the risks to financial stability, but economic policy uncertainty remains high. In the euro area economic recovery is strengthening and deflation risks are diminishing; the resurfacing of uncertainty over the area’s cohesion has led to a rise in sovereign spreads in various countries, which has been reabsorbed in part towards the end of April. Liquidity conditions on the Italian financial markets have improved after the tensions registered at the end of 2016.

Italian banks’ profits have decreased sharply, in part owing to some banks choosing to increase write-downs on NPLs; however, the outlook is improving. NPLs continue to decrease. The system’s capital position remains stable and the government support measures introduced last December could favour planned capital increases. Italian banks are still exposed to significant risks: profits remain low and vulnerable to a weakening of the economic recovery and to an increase in funding costs.

The economic recovery and low interest rates have improved households’ and firms’ ability to repay their debts; for both sectors, vulnerability to a rise in interest rates is limited. Insurance companies’ profits are stable and their capital position would be able to withstand very adverse scenarios.