A truly sustainable strategy for Italian banks?

The article published by CityWire Italia this morning - https://citywire. com/it/news/le-commissioni-sul-risparmio-gestito-fanno-volare-i-bilanci-delle-grandi-banche-italiane-lo-studio/a2459623 - highlights how large Italian banks recorded strong revenue growth in 2024 thanks to the boom in commissions on asset management, while net interest income increased to a lesser extent. This dynamic has led to a profound transformation in the banking business model, favoring asset management activities at the expense of lending.

In light of all this, as a well-known television journalist said years ago: the question arises:

Is this strategy really sustainable in the long term?

According to the article in CityWire Italia, the five main Italian banking groups have recorded a 7.2% increase in net profits, with a significant increase in net commissions (+8%), while net interest has only increased by 4.6%. This growth has been favored by an increase in asset management and indirect deposits (+9.3%), while direct deposits have only increased by 1.3%.

The article also highlights how the reduction in lending (-1.9%) and the decline in loans to households and businesses could represent a risk to economic growth. The secretary general of First Cisl, Riccardo Colombani, criticizes this strategy, stating that, in a more efficient capital market, savings could flow into the real economy rather than exclusively generating commissions for banks.

The main argument of the article is that the model based on asset management fees is economically advantageous for banks, as it generates high profits without having to face the risks associated with lending. However, in my opinion, this approach presents several critical issues:

1. Reduction of credit and impact on the real economy – The decrease in loans granted leads to a weakening of the Italian economic fabric, especially for SMEs that traditionally depend – unfortunately still today – on bank credit.
2. Risk of concentration of managed assets – Banks are directing more and more resources towards financial instruments and asset management, which are exposed to market fluctuations, thus increasing systemic risk.
3. Misalignment between bank profitability and customer needs – Increased fees could make asset management products less advantageous for customers, who may seek less expensive and more efficient investment alternatives.

An alternative perspective

A more sustainable alternative would be a strategy of rebalancing between asset management and lending. This approach could guarantee stable and long-lasting profits for banks without compromising the economic growth of the country. The main levers of this strategy include:

• Encouraging credit to SMEs – Banks should create new flexible financing instruments to support businesses, for example through guaranteed loans or lending models based on artificial intelligence to assess risk more precisely.
• Diversify sources of income – Instead of depending solely on asset management fees, which is what we're all good at, banks could really and effectively develop new lines of business, such as personalized financial advice or advanced consulting services for institutional and other investors.
• Develop a more efficient capital market – Collaborate with the public and private sectors to channel a portion of managed savings towards productive investments in the real economy, such as infrastructure and technological innovation.
• Use of emerging technologies for greater efficiency – Obviously, the adoption of advanced data analysis tools and artificial intelligence could help banks identify new market segments and optimize risk management.
• Creating incentives for sustainable finance – A greater focus on ESG (Environmental, Social, and Governance) investments and sustainable finance could guarantee long-term returns, with a positive impact on the real economy.

Conclusion

The current strategy of the major Italian banks, based on increasing commissions from asset management at the expense of credit, has led to positive financial results in the short term. However, in the long term, this policy could prove detrimental to both the banking system and the Italian economy as a whole. A more balanced approach, integrating profitable asset management with a greater commitment to financing the real economy, could offer more lasting and sustainable advantages. Furthermore, the adoption of emerging technologies, the integration of sustainable finance and greater collaboration or M&A operations with fintech and insurtech could improve the resilience of the banking sector and create new growth opportunities. As we all know, only through a long-term strategic vision will it be possible to guarantee stability and growth for the banking sector and for the country as a whole... and we really need it!!!!

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