Financial Stability Report No. 1 - 2021

The global macroeconomic situation improved in the early months of the year, especially in the advanced economies, following the roll-out of the vaccination campaign and new large-scale interventions by the authorities. Nevertheless, the risks to financial stability remain high, owing to the still uncertain course of the pandemic and its economic consequences.

In Italy, as in the other EU countries, financial market conditions remain relaxed, in part thanks to the intervention of the ECB Governing Council, which since March has increased asset purchases under the pandemic emergency purchase programme (PEPP).

The impact of the pandemic on the economic situation of households has been highly diversified and has led to a significant increase in income inequality. Overall, however, loan repayment capacity has remained good because of the low interest rates, the debt moratoriums and the other support measures.

The repercussions of the pandemic crisis on the profitability and indebtedness of firms are extensive and very heterogeneous across economic sectors. The risks stemming from an increase in firms' vulnerability, especially in the sectors hit hardest by the pandemic, remain high, but they can be mitigated by the economic recovery and by monetary and fiscal policies. 

The deterioration in credit quality continues to be the main risk to which banks are exposed. The new non-performing loan rate has risen in recent months and the loan loss provisions for performing loans have continued to increase, contributing to the sharp drop in profitability in 2020. The uncertain situation calls for considerable prudence and the stepping up of decisions on provisioning, especially on the part of the less significant banks. Capital adequacy improved further in the second half of 2020; the gap between the average capital ratio of Italian significant banks and the capital adequacy of the significant banks of the countries participating in the SSM was practically nil.

In the second half of last year, the average solvency ratio of insurance companies rose, reaching a higher level than that at end-2019. The share of open-end investment funds that are vulnerable to high demand for redemptions has increased, but is still low.