By Sara Rossi and Valentina Za
MILAN (Reuters) -Loans by Italian banks to businesses in August posted the biggest drop on record, data showed on Tuesday, as the European Central Bank's policy of tightening bites.
A string of hikes by the ECB, whose key rate stands at a record high of 4% since last month, make it much more expensive for firms to borrow.
"The transmission of monetary policy is in full swing," Luca Mezzomo, head of macroeconomic analysis at Intesa Sanpaolo (BIT:ISP), said.
"The depth of the contraction has been larger than forecast, and the adjustment of credit conditions swift," he added.
Bank credit to businesses fell 6.2% year-on-year in August, the biggest fall on record according to Reuters calculations based on Bank of Italy data, following a 4.0% drop in July.
Mezzomo forecast the credit tightening would reach its peak between late 2023 and early 2024, with the impact of higher rates deepening in coming months even assuming the ECB does not raise them further.
Italy has backtracked on a tax it announced in August on the income banks reap from lending, which targeted an expected windfall from the higher rates.
The government has given banks an opt-out from the tax if they boost reserves. Prior to the amendment, the levy risked hitting lending at a time when its cost is already rising, a senior Italian banker told Reuters.
Sources told Reuters last week proceeds from the tax could now be zero.
Economy Minister Giancarlo Giorgetti on Tuesday confirmed the tax could yield next to nothing and said its goal was to ensure banks had enough capital to lend.
"Banks will have no excuse not to lend to companies," he said.
Also in August, data showed residents' deposits kept falling, decreasing 5.4% annually after a 6.5% fall in July, to 2.42 trillion euros ($2.57 trillion), down from 2.43 trillion in July.
Banks further increased bond issuance to make up for lower customer funding, with bond sales up 18.3% yearly in August.
Targeting small savers and diverting cash away from current accounts, Italy's Treasury sold last week more than 17 billion euros of a new BTP bond reserved for retail investors.
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