Last week, I had the pleasure of discussing the banking sector in Italy with Giovanni Pons from La Repubblica. With so much ground to cover, it’s a small wonder how he managed to condense our conversation down to one page in the paper!
And there really is so much to say about our country’s banks. From having the world’s oldest – Monte dei Paschi, founded at the height of the Italian Renaissance, before Michelangelo and Raphael were even born, in 1472 – to an entirely digital, modern bank, like illimity, the environment for breeding financial institutions in Italy has been strong for centuries. But how can it continue to be so in an age of global giant banks? What needs to be done to create a healthy banking ecosystem in Italy? Can the country’s banks carry on as they were before?
The truth of the matter is the banking sector is evolving rapidly before our eyes. Four forces are shaping it. Firstly, the seismic impact of digital technology in the sector - on costs, processes and decision making in banks - is impossible to overstate. Secondly, there is impressive competition jockeying to take a slice of traditional banking service, from Big Tech firms to FinTechs to telecommunications operators. Thirdly, the capital budget rules and other regulations imposed on banks since the Financial Crisis of 2008-09 have had a major impact. And finally, by imposing low interest rates, the monetary policy of central banks has inevitably created enormous pressure on banks’ margins.
Faced with such pressures – the need to simultaneously cut costs and invest massively in technology – banks are increasingly joining forces and consolidating. The few medium and small banks left in Italy face a choice. Either they come together to create a larger entity to stand alongside the likes of Intesa Sanpaolo or Unicredit, or they enter into these. Either way, they have to quickly transform, or they will find there is no longer a place in the market for them.
But this transformation also offers a wealth of opportunities. Operating on all fronts – the universal banking model – has become increasingly difficult, but as so often with change, it has created a promising space in which completely new banks, unencumbered by the past and with a highly innovative and specialized focus, are thriving. Illimity is a fine example of this, with our specialization in lending to SMEs, the purchase and management of distressed loans and the whole world of open banking platforms.
This may lead us to ask, can Italian banks ultimately compete in Europe and at the world level? I think the answer is yes, but major change needs to happen to get to that point. Unfortunately, it is a fact that continental European banks do not rank in the top global banks. It would be a strategic mistake, however, to leave the field only to the Americans, Chinese, and to a lesser extent, the British. Europe can rightly stand alongside these players, but it won’t be in a position to enter the top league until the banking union is complete. The reform of the European Stability Mechanism is another step in the right direction, and with further reforms and effort to drive banking integration, there are several European banks – including Italian ones – which could become competitive with the banking giants of the East and West in all areas of activity.
Such a scenario can only happen if there is the far-sighted political vision and will to back it up. Europe must start thinking and behaving like a global power.
You can read my interview with La Repubblica here