21. Italy
Small and medium-sized enterprises (SMEs) form the backbone of the business community, accounting for a large share of value added and employment.
The Italian economy experienced a more subdued expansion in 2022 after the sharp recovery of the previous year, which made up for two-thirds of the exceptional contraction that occurred during the pandemic. GDP growth was weighted down by heightened uncertainty following the large-scale aggression of Russia against Ukraine, rising energy and food prices, and the shift towards tighter monetary policy.
Weak cyclical conditions swiftly affected credit markets: lending to SMEs came to a halt and eventually declined at a sustained pace, ending a period of expansion fuelled by support measures adopted during the pandemic. In early 2023, loans to large enterprises also began to contract slightly.
After remaining broadly relaxed during the pandemic, credit supply policies gradually tightened, partly as a result of banks’ higher perceived risk. Business borrowing rates rose, reflecting the process of monetary policy normalisation; however, collateral requirements remained stable and low by historical standards.
Credit quality remained good. The ratio of SME new non-performing loans to outstanding loans stood at a historically low level. The stock of non-performing exposures continued to decline, also as a result of the still high volume of disposals.
Equity financing for SMEs soared in the early stage segment, reaching an unprecedented peak since 2007, also thanks to a very active institutional entity investing in young companies with high growth prospects. Conversely, after the upsurge recorded in 2021, expansion capital declined for both SMEs and large companies alike.
Business-to-business payment delays reached a 15-year low in 2022, after falling well below pre-pandemic levels in the previous year. The widespread decline of the indicator was more pronounced for micro firms than for SMEs and large enterprises.
After the rise observed in 2021, judicial liquidations started to fall again, well below the pre-pandemic values, partly thanks to firm support measures and economic recovery. The Business Crisis and Insolvency Code finally entered into force in July 2022, with the aim of better tackling corporate crises.
Financial support measures, introduced or stepped up in recent years, continued to help firms cope with the heightened uncertainty surrounding the macroeconomic developments.
Credit guarantee schemes, which have traditionally played a key role in facilitating SME access to finance, were strengthened during the pandemic. The preferential programme for the granting of public guarantees by the Central Guarantee Fund and SACE was extended several times.
In application of the European Commission’s Temporary Crisis Framework for State aid measures in support of the economy following Russia’s war against Ukraine, further measures were introduced to address firms’ liquidity needs, including a new regulation on public guarantees until the end of 2022, providing for the granting of the Central Guarantee Fund and SACE guarantees to companies hit by a contraction of activity due to the consequences of the war, and an increase in the coverage of the Fund’s guarantees for financing aimed at improving the efficiency or diversification of energy production or consumption.
Following the sharp recovery in 2021, which made up for two-thirds of the exceptional contraction occurred during the COVID-19 crisis, the Italian economy continued to resume at a more subdued pace in 2022. GDP growth, initially boosted by the lifting of the containment measures to prevent the spread of the pandemic, began to slow owing to global strains and uncertainty stemming from the conflict in Ukraine.
Production continued to expand in services, mainly due to strong growth in some of the sectors hardest hit by the pandemic, and in construction, partly helped by public support measures. Manufacturing remained broadly flat, dampened to some extent by significantly higher energy costs. Investment continued to increase on average over the year.
Inflation, fuelled by soaring energy and food commodities prices, rose markedly, accompanied by a swift tightening of monetary policy: from the summer of 2022 onwards, the ECB rapidly raised key interest rates. Monetary conditions continued to tighten in the early months of 2023, as inflation remained high. Against this background, lending to firms slowed in 2022 and ultimately started contracting, amid weak growth and high uncertainty.
Small and medium-sized enterprises account for 99.9% of Italian businesses; the share of micro-firms exceeds 95% (See Table 21.2). In 2021, SMEs employed around 80% of the industrial and service labour force and generated about two-thirds of turnover and value added (see Figure 21.1).
Source: Istat.
Country definition
In accordance with Eurostat standards, the Italian National Institute of Statistics defines small and medium enterprises the firms with fewer than 250 employees. In detail, micro-enterprises and small firms have, respectively, less than 10 and 10-49 employees, while medium-sized enterprises are defined as those with 50-249 employees.
The SME definition used by financial institutions
The Bank of Italy classifies data on business lending by firm size: small firms are defined as limited partnerships, general partnerships, informal partnerships, de facto companies and sole proprietorships with fewer than 20 workers. This data disaggregation has been used for most indicators on the debt side.
Growth in bank lending to SMEs came to a halt in 2022 and eventually contracted, ending a long period of expansion that started in 2020 and was boosted by support measures adopted during the pandemic. In early 2023, loans to SMEs continued to decline at a sustained pace, also as a result of higher borrowing costs and lower investment financing needs; credit to large enterprises began to shrink (see Figure 21.2). The share of SME loans in total business loans fell further to 16.4%, a new low since 2007. Loan maturity trends confirm the clear shift from short-term to long-term lending observed in recent years, likely reflecting the need to cope with uncertain economic prospects.
Source: Bank of Italy.
Lending standards gradually tightened in 2022 and the first part of 2023, after remaining broadly relaxed during the pandemic. Based on Italian banks’ responses to the euro-area bank lending survey, the more selective credit policies were driven by a higher risk perception coupled with a lower tolerance, which was reflected in a deterioration in the terms and conditions applied to loan agreements (see Figure 21.3).
However, according to the Bank of Italy’s Survey on Industrial and Service Firms, in 2022 the rejection rate, measured as the share of SMEs reporting that they had not received some or all of the credit requested, plummeted to 2.6%, the lowest level in the last fifteen years and more than 3 percentage points lower than the value reached two years earlier during the COVID-19 crisis.
Business borrowing rates rose significantly for SMEs and, to a lesser extent, for large enterprises, reflecting the process of monetary policy normalisation. As a result, the interest rate spread between the average SME and large enterprise rate widened in 2022.
Collateral requirements remained stable compared to the previous year but low by historical standards: in 2022, 52% of SME loans were backed by real guarantees, the lowest level since 2007 and only equal to that recorded in 2009.
Credit quality remained good. In the last two years, the ratio of SME new non-performing loans (NPLs, which include bad debts) to outstanding loans stood at a particularly low level by historical standards (see Figure 21.4). The stock of non-performing exposures declined further, also as a result of the still high volume of disposals. The development of a secondary market for NPLs and improvements in insolvency, debt restructuring and debt enforcement systems contributed to their successful reduction.
Source: Bank of Italy.
Total early stage and expansion capital investment increased moderately in 2022, following sustained growth in the previous year (see Table 21.3). Resources directed to small and medium-sized enterprises soared in the early stage segment, doubling compared to 2021 and reaching an unprecedented peak since 2007. This trend was also due to the activities of Fondo Nazionale Innovazione (CDP Venture Capital Sgr), a very active institutional entity, which invested both directly and through new and existing closed-end funds in young companies with high growth prospects. More than a tenth of early stage funding came from public investors. The sustained increase observed in the first year of the pandemic was thus consolidated. Conversely, after the upsurge observed in 2021, expansion capital declined for both SMEs and large firms alike.
New stock market listings, which had doubled in 2021 compared to the previous year reaching levels well above the pre-pandemic period, returned to the average values recorded in the three years before the start of the public health emergency. Transactions were concentrated on Euronext Growth Milan (formerly known as AIM Italy), the market segment devoted to small and medium-sized companies.
Fundraising through online financing channels remained very limited, despite growth in recent years, partly due to the accelerated use of digital platforms during the pandemic crisis. Direct lending, which allows SMEs to diversify their available sources of finance, increased in 2022. However, equity crowdfunding, which enables SMEs to raise capital via dedicated online platforms and mainly finances innovative start-ups, remained restricted in volume, as did lending crowdfunding.
After falling well below pre-pandemic levels in 2021, business-to-business payment delays reached their lowest level since 2008 in the following year. According to Payline database, which tracks the transactions of more than three million Italian companies, the decline in the indicator, which was widespread across all size classes, was more pronounced for micro firms (10.3 days, down from 12.1 in 2021) than for SMEs and large enterprises (7.3 and 11.2 respectively, down from 7.8 and 12.5; see Table 21.4).
After the upswing observed in 2021, just over 7 000 liquidation proceedings were opened in 2022 (see Figure 21.5), marking the lowest level recorded in the last fifteen years, far below the pre-pandemic figures. The sharp decline in the number of business failures can be partly attributable to firm support measures and the economic recovery.
The Business Crisis and Insolvency Code1 (Codice della crisi d’impresa e dell’insolvenza), aimed at better tackling corporate crises, finally entered into force in July 2022. It provides for a strengthened alert system, based both on the duties of management and supervisory bodies and on alerts from qualified public creditors. The Code includes the new provisions on the negotiated settlement of the enterprise crisis, introduced by Decree Law 118/2021, simplifies the procedures by which insolvent entrepreneurs can get rid of unsatisfied debts during judicial liquidation and increases debtors’ discretion in formulating business continuity plans, while at the same time strengthening creditor protections.
Source: Cerved.
Financial support measures, introduced or stepped up in last years, continued to help firms cope with the heightened uncertainty surrounding the macroeconomic developments.
Since 2020, credit to firms has been extensively supported by the strengthening of public guarantee schemes and the debt moratorium for SMEs introduced by the Government in response to the pandemic crisis (see Figure 21.6). The preferential programme for the granting of public guarantees by the Central Guarantee Fund and SACE has been extended several times. In 2021, in order to facilitate the gradual return to the ordinary regime, the conditions for the granting of guarantees by the Fund were tightened. The guarantee coverage has been reduced from 90 per cent to 80 per cent for guaranteed loans up to EUR 5 million and gradually from 100 per cent to 80 per cent for guaranteed loans up to EUR 30,000. In addition, the provision on the maximum interest rate applicable for guaranteed loans up to EUR 30,000 has been removed.
Source: MedioCredito Centrale.
In 2022, the Government again amended the rules on public guarantees to support companies’ liquidity needs arising from growing difficulties over supplies of commodities and intermediate inputs. The process of gradual phasing out from the extraordinary regime outlined in 2021 therefore slowed down. The most important measures were the extension of the State guarantee schemes, under the same preferential conditions, in favour of companies facing liquidity needs due to the increase in energy prices, and the possibility of deferring the repayment of principal for up to six months for loans of up to EUR 30,000 guaranteed by the Central Guarantee Fund. In addition, support initiatives were designed for businesses particularly affected by the outbreak of the war in Ukraine and for companies exporting to countries involved in the conflict. Finally, in application of the European Commission’s Temporary Crisis Framework for State aid measures in support of the economy following Russia’s large-scale aggression against Ukraine, further measures were introduced to meet firms’ liquidity needs. Some initiatives included a new regulation on public guarantees until the end of 2022, providing for the granting of the Central Guarantee Fund and SACE guarantees to companies hit by a contraction of activity due to the consequences of the war, and an increase in the coverage of the Fund’s guarantees for financing aimed at improving the efficiency or diversification of energy production or consumption.
As of the end of June 2022, the possibility of using public guarantee schemes introduced in 2020 in response to the pandemic ended. The framework was subsequently modified several times to support liquidity needs arising from difficulties in the supply of inputs and rising energy, petrol and raw material prices. To address the consequences of the conflict in Ukraine, new guarantee schemes were introduced, which companies can access until 31 December 2023.
In the broader landscape of government policy response to the crisis and, at the same time, to the challenge of the ‘twin transition’, Italian public institutions also introduced or strengthened interventions specifically dedicated to start-ups and innovative SMEs. The National Innovation Fund (CDP Venture Capital Sgr) was set out in the 2019 Budget Law to streamline public resources devoted to innovation, while acting as a catalyst for private and international capital. With an initial endowment of EUR 1 billion, it now manages assets worth more than EUR 3 billion.
In 2022, CDP Venture Capital Sgr also began managing the Digital Transition Fund and the Green Transition Fund, funded by the National Recovery and Resilience Plan, part of the NextGenerationEU programme. With a budget of around EUR 300 million, the Digital Transition Fund aims to promote the digital transformation of supply chains through direct and indirect venture capital investments, particularly in the fields of artificial intelligence, cloud, healthcare, 4.0 industry, cybersecurity, fintech and blockchain.
The Green Transition Fund supports the growth of an innovation ecosystem through direct and indirect venture capital investments in green transition sectors, such as renewable energy, circular economy, sustainable mobility, energy efficiency, waste management and energy storage, mobilising EUR 250 million.
Source: See Table 21.1
References
Bank of Italy (2022a), Annual Report for 2021, Ordinary Meeting of Shareholders, Rome.
Banca d'Italia - Relazione annuale sul 2021 (bancaditalia.it)
Bank of Italy (2022b), Financial Stability Report, November 2022, Rome.
Bank of Italy - Financial Stability Report, No. 2 - 2022 (bancaditalia.it)
Bank of Italy (2023a), Financial Stability Report, April 2023, Rome.
Bank of Italy - Financial Stability Report, No. 1 - 2023 (bancaditalia.it)
Bank of Italy (2023b), Annual Report for 2022, Ordinary Meeting of Shareholders, Rome.
Bank of Italy - Annual Report for 2022 (bancaditalia.it)
Bank of Italy (2023c), Bank Lending Survey, Rome.
Bank of Italy - Bank Lending Survey (BLS) (bancaditalia.it)
Bank of Italy (2023d), Survey of Industrial and Service Firms in 2022, Rome.
Bank of Italy - Survey of Industrial and Service Firms (bancaditalia.it)
Bank of Italy, Economic Bulletin, various issues, Rome.
S. De Mitri, A. De Socio, V. Nigro, S. Pastorelli (2021), Financial support measures and credit to firms during the pandemic, Bank of Italy, Occasional Papers, No. 665, December.
Note
← 1. The Business Crisis and insolvency Code renamed the ‘bankruptcy’ into ‘judicial liquidation’.