Italy Finance Minister urges banks to do more on lending, IT investment

By Giuseppe Fonte and Valentina Za

ROME (Reuters) -Italy's Economy Minister Giancarlo Giorgetti on Friday criticised the country's banks for their focus on wealth management amid worrying signs of a contraction in lending to firms, and their poor investments in digital technologies.

Addressing bankers gathered in Milan for the annual meeting of industry lobby ABI, Giorgetti pointed to the state guarantee schemes granted during the COVID pandemic and the energy crisis which have shifted credit risks from lenders to taxpayers.

State guarantees allowed banks to free up capital that would otherwise be tied up against corporate loans.

This guaranteed "exceptional returns" to shareholders, Giorgetti said, as banks could pay out the record profits driven by high interest rates instead of using the money to beef up capital reserves.

Meanwhile, bank lending to firms is contracting, Giorgetti said, a trend that the government is watching "with attention and concern."

Despite a gradual phasing out of the emergency aid programmes, the state's exposure to guaranteed bank loans amounted to 294 billion euros ($343.63 billion) in 2024, or 13% of GDP.

Weak lending levels also spare banks the cost of provisioning against loans turning sour. Loans to non-financial firms in Italy stood at around 600 billion euros in May, or some 70 billion below the May 2022 level.

Giorgetti also took aim at digital technology investments which central bank data put at 901 million euros over the past two years.

"A surprisingly low figure when compared to the extraordinary profits recorded, and the related dividends distributed, in precisely the same years," Giorgetti said.

Italy's top seven banks posted combined 2024 profits of around 25 billion euros, a new record for a third straight year despite declining interest rates, the FISAC CGIL union calculated. Banks paid out to investors 21 billion euros and cut branches by 5%.

To support profits as lower rates start biting, Italian banks have engaged in an intense round of consolidation.

The government has challenged UniCredit's bid for Banco BPM, a smaller peer whose clients are small firms in northern Italy that provide backing for Giorgetti's League party.

"We do not look at the nationality of bankers but at their ability to respond to the role of collecting savings and providing credit," Giorgetti said.

The strengthening of Italy's banking system over the past 15 years, helped by public money, has not translated into better borrowing conditions for firms, he added.

Now the "credit business has given way to asset management ... wealth must be created not simply managed," he said.

($1 = 0.8556 euros)

(Editing by Gavin Jones)