SHOT VIEW: S&P improves the outlook on Italy

October 26, 2020

S&P statements support our vision on the Italian banking sector.

Standard & Poor's confirmed Italy's rating at BBB, improving the outlook from negative to stable. Covid-19 has hit the country's economy hard, creating great uncertainty. The rating agency's projections reveal that GDP will not return to 2019 levels until 2023. The saving rate of Italian households is at an all-time high. Businesses raised their debt to handle the sharp drop in cash flows.

However, the extraordinary measures of the ECB, which has intensified the bond purchase program, and of the EU, which has established a Recovery Fund intended to provide up to 12.5% ​​of GDP in loans and contributions, were decisive in the judgment.

Standard & Poor's vision confirms what we said some time ago. Covid-19 had a violent effect on society and economy. Equally violent, however, was the global intervention of governments and financial institutions. The support introduced by the States represents a significant GDP percentage (for Italy more than 40%). The main financial institutions have decided to implement important manoeuvres, aimed at guaranteeing liquidity to the States and the banking system, to support credit to households and businesses. The stimulus measures adopted by the Italian government, aid from the ECB and funds arriving from the EU therefore represent an opportunity to relaunch economic growth.

Added to this is the correct Italian attempt to extend the life of debt by issuing the new 30Y BTP. In a favourable moment, thanks also to the positive signal represented by the EU agreement, foreigners have confirmed their interest in the Italian debt. With a demand of more than 90 billion, foreign investors have won over 70% of the new BTP issued Thursday by the Treasury.

Standard & Poor's statements further support our positive vision on the Italian banking sector. Italian banks have always been considered risky. This is due to the heavy weight of Italian debt on their balance sheets and the country associated risk. The European support to financial institutions helps to reduce the perceived risk. The financial sector is the one on which everyone depends, and we believe that the recovery of the economy will have to pass through it.