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. The rise in long-term real interest rates in the United States has not spilled over to the euro area, 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). Conditions are favourable on the government securities market; purchases by non-residents rose in the first two months of 2021.
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 share of debt held by financially vulnerable households, while rising, remains low and the risks to the financial system are limited.
Despite the economic policy measures adopted and the favourable credit access conditions, the repercussions of the pandemic crisis on the profitability and indebtedness of firms are extensive and very heterogeneous across the different 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 support measures for liquidity and credit access are still necessary: removing them too soon could increase the difficulties for firms that have a good chance of recovering. Looking ahead, a gradual and targeted recalibration of the measures will make it possible to minimize the risks to financial stability.
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, especially for exposures to firms in the sectors that have been hit hardest by the crisis. 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. Last year the pandemic did not slow down plans to dispose of non-performing loans.
Capital adequacy improved further in the second half of 2020, for both significant and less significant banks, mainly thanks to the rebalancing of portfolio assets towards less risky exposures. The gap between the average capital ratio of Italian significant banks and that 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, mainly owing to the increase in the value of the securities portfolio. Profitability diminished slightly during the year. The degree of liquidity of insurance company assets remains adequate.
Net subscriptions of open-end, alternative and real estate investment funds have continued to grow in recent months. The share of open-end investment funds that are vulnerable to high demand for redemptions has increased, but is still low. The risks to financial stability from the sector remain limited.