Italy’s banking lobby chief sees rising competition for term deposits

Florence: The head of Italian banking association ABI said on Wednesday banks would have to compete harder to secure medium- and long-term funds as the European Central Bank keeps reducing its bond buying, draining cash away from the financial system.

Italy sits on the world’s third-largest public debt and the ECB’s withdrawal of bond buying support poses a refinancing challenge to the Italian government, pitting it against its banks in the race for savers’ cash.

ABI President Antonio Patuelli said that competition from the state would keep the pressure up on lenders to remunerate deposits with a set maturity despite rates going down. The ECB last week cut interest rates for the third time this year.

“Let’s be mindful that the ECB is scaling down purchases of government bonds,” Patuelli told a press seminar in Florence.

“This will determine…increasing competition for liquidity invested with a maturity. I stress: with a maturity…, because banks can’t finance a 20-year mortgage with sight deposits…, which you can withdraw with a click.”

Italian banks have been criticised for failing to reward depositors as the ECB raised rates in 2022-23. The ABI says current accounts are not a form of investment, but a service.

Rates on time deposits have risen more markedly but deposits with a set maturity are not widespread in Italy. They are used mostly by digital banks, while high street lenders tend to shun this more costly form of funding.

Patuelli also said Italy paid high rates to secure strong demand at a bond sale on Tuesday.

Banks raise funds at a premium over government bond rates.

“Yesterday’s sale went really well and the interest rate was significant: the two things go hand in hand,” he said.

A new seven-year Italian bond on Tuesday drew more than 99 billion euros in orders. Demand for the top-up of a 30-year note surpassed 101 billion euros – the highest-ever total demand for an Italian dual-tranche bond sale.