Italy’s Central Bank: loans belonging to the commercial real estate sector (CRE) are the riskiest

“In the second half of 2021, the vulnerability of Italian banks coming from real estate exposures remained at historically low levels”. This was reported by the Bank of Italy in its latest 2022 Financial Stability Report where some projections for 2023 are also published. According to the Bank of Italy, in fact, “in 2023 the annual flows of new impaired loans relating to both loans to household lending for the purchase of houses and for loans to real estate companies would remain stable in relation to capital. However, the riskiness of loans relating to the commercial real estate sector (CRE) remains higher both with respect to the average of total loans to businesses and in the European comparison.

The Bank of Italy has recently developed an analytical framework for assessing the risks for the financial system from exposures to the commercial real estate sector. The share of loans for which intermediaries detect a significant increase in credit risk compared to the time of disbursement (loans in stage 2) reached 25% of total loans in December 2021 (it was 14% in December 2018).

Given the continuing uncertainty about the economic outlook, due to the pandemic and the conflict in Ukraine, there is a risk of a deterioration in the ability to repay loans and a consequent deterioration in credit quality. It is therefore essential that intermediaries carefully assess risk exposure to this sector, implementing prudent provisioning policies “.

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