DBRS Morningstar: Italian Banks: Moderate Refinancing Risks As TLTRO Funds Begin To Mature

FRANKFURT, Germany--(BUSINESS WIRE)--The commentary analyses the potential refinancing risks for Italian banks as they reimburse the European Central Bank (ECB)’s targeted longer-term refinancing operations (TLTRO) funds.

Summary highlights from the commentary include:

• Italian banks are amongst the largest users of Eurosystem funding despite some early repayments following the change in the conditions of the ECB's TLTRO III programme.
• TLTRO III funds represent a large source of funding for Italian banks, which will expire by end-2024, with the bulk falling due in June 2023. However, it is likely that only part of the TLTRO III funds will be replaced by other sources of funding, given that a significant portion of TLTRO was drawn down on an opportunistic basis.
• We expect funding and liquidity indicators to gradually deteriorate as Italian banks reimburse the TLTRO III funds. Nonetheless, they should remain satisfactory given the current ample liquidity cushions.

“The upcoming maturity of TLTRO III funds and the expected MREL issuances will likely translate into higher refinancing costs for Italian banks due to the tightening in the ECB's monetary policy,” said Andrea Costanzo, Vice President from the DBRS Morningstar Global Financial Institutions team. “However, the increase in interest rates coupled with the economic slowdown will likely weaken loan demand and supply, in turn translating into lower funding needs.”

To view the full report, click here: https://www.dbrsmorningstar.com/research/408453/italian-banks-moderate-refinancing-risks-as-tltro-funds-begin-to-mature

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