The new issue of Economics and Finance (TEF) issues produced by the ABI Economic Analysis Office has been published. The study aims to observe the effects on the evolution of bank credit granted to companies induced by the dynamics of the economy, the disposals of NPL and the demographic evolution of the Italian and European industrial sector. Furthermore, the relationship between the financial conditions of European companies and the dynamics of bank credit is analyzed.
The analysis shows that taking into account the dynamics of the economic cycle, the activity of transferring NPLs from bank balance sheets and the demographic change of companies, the availability of bank credit for companies is much higher than what emerges from the simple analysis of the variation in raw data on credit volumes, both in Italy and in Europe. In particular, the study highlights the effects on the bank credit demand of the demographic evolution of companies in the last decade. In these two decades of crisis the number of companies has indeed reduced significantly and it is quite clear that, all other conditions being equal, a lower number of companies causes an overall reduction in the demand for bank loans, which translates into a lower stock of outstanding loans without this implying a reduction in credit granted by the banking sector to individual companies.
As regards the links between the dynamics of bank lending to businesses and the financial conditions of the businesses themselves, the analysis points to the crucial role played by the latter variable in explaining the decline in bank loans in the last decade. In detail, the study shows the significant improvement in the financial situation of European companies since the financial crisis of 2008-2009. Overall, the financial conditions of the companies of all the main European countries have, in fact, moved from a deficit situation - in which the operating revenues were insufficient to finance both current expenses (wages, financial charges, taxes, etc. .) and capital account (investments primarily) - to a structural surplus. The econometric estimates of the ABI Economic Analysis Office confirm that the improvement in the financial conditions of companies has translated into a lower demand for external financing, including bank loans. It is, therefore, also to this factor that the lower demand, during the crisis, for bank credit by companies can be traced, in the study expressed by the relationship between loans and added value produced by the same companies (i.e. from the credit input per unit of output of firms). This evidence is confirmed, in particular, for French, Italian and Spanish non-financial companies, while it does not appear to have significantly influenced the choices of German companies, which structurally have ample liquidity. Referring to the data for the first half of 2017, it is estimated that the financial position of companies explains more than 80% of the variations in credit input observed in individual countries in comparison with the European average. In particular, 80% and 85% of the contraction in the ratio between credit and value added recorded for Spanish and Italian companies compared to the European average and all the relative increase of French companies can be attributed respectively to this cause.
Looking ahead, European policies are desirable to stimulate investment, which would find support in the ample liquidity of companies and in favorable credit supply conditions. The combination of these two elements would contribute to consolidating the recovery in volumes and the quality of bank credit granted to European companies.