Credit crunch in Italy:
Evidence on new ISAE survey data
Stefano Costa and Patrizia Margani
ISAE, Rome
Bruxelles, October 12th, 2009
Aim of the research
• Using the new “credit” section of the ISAE’s
survey on the manufacturing sector, it is possible
to provide a timely picture of current bank-firm
relationships, and to investigate the presence of
clues of credit crunch.
Background
• Since the beginning of the current crisis, the real
risk for the Italian economy was that, in presence
of a strongly bank-oriented economic system, the
drying up of the interbanking market would end
up by tighten the credit access for firms.
• The risk of credit crunch became the most evoked
issue in institutional and academic contexts.
• As the literature has shown (see e.g. Berensztein
and Jong-Wha Lee, 2000; and Bank of Italy
works) this type of issues are best addressed
using firms-level data.
The ISAE survey on manufacturing firms
(the credit section) (1)
• The survey is conducted monthly on a sample of about 4,000 firms.
• It collects information on many structural aspects of the firms, including the
number of employees, industrial sector, location, export share on turnover,
productive internationalization (offshoring).
• In March 2008 a new section has been included, focusing on the firm-bank
relationship. More specifically, each firm is asked whether:
– during the previous quarter its credit access conditions improved,
worsened or remained the same;
– it obtained the loans requested and, in that case, whether the loan
conditions worsened;
– (since June 2009) in case of worsened lending conditions, in what
terms this occurred: higher interest rates, more personal guarantees,
more real guarantees, limits to the loan amount, other costs;
– if it did not obtain the loan, whether this was due to a denial by the bank
or a firm’s giving up because the contractual conditions were too costly.
The ISAE Survey (2)
On this basis, we define a firm as “rationed” when it does not obtain the
loan. More in detail, we say that a rationed firm is:
– “strongly rationed”, whether the bank rejects the loan application;
– “weakly rationed”, whether the firm gives the loan up because of too
costly conditions.
In doing so, using the sample data we can verify at least two features that,
according to the literature, are observed during a credit crunch:
a) a remarkable increase in rejection rate of loan applications
b) a disproportionate drop in loans to small and medium enterprises (SMEs)
Moreover, when the crisis is global, it is interesting to explore the
“internationalization effect”, namely to compare the credit conditions of
“national” firms (i.e. those operating domestically) to the ones faced by
the “international” firms (that sell or produce abroad)
Evidence (1)
The net percentage of firms that face worsening credit conditions (a
common indicator of tensions on credit markets) increases sharply in Fall
2008, reaching a maximum in Dec.08. The situation then improves, but it is
still worse than in the pre-crisis period.
Net percentage of firms that face worsening credit conditions, by firm size
60.0
50.0
40.0
30.0
20.0
10.0
0.0
Mar-08
Jun-08
Sep-08
Small
Dec-08
Medium
Apr-09
Large
Jun-09
Sep-09
Evidence (2)
• A strong credit tightening clearly arose in Fall 2008: in Sep.08-Nov.08 the
overall share of rationed firms jumped from 3.8 to 6.3%.
• During last months, the credit rationing tended to lessen, but the
differences between the size classes are now widening once again.
Percentage of rationed firms, by firm’s size
10.0
8.0
6.0
4.0
2.0
0.0
Mar- Jun- Sep- Nov- Dec- Jan- Feb- Apr- May- Jun08
08
08
08
08
09
09
09
09
09
Small
Medium
Large
Jul- Aug- Sep09
09
09
Evidence (3)
SMEs are increasingly more rationed than Large ones
Rationing: SMEs vs large firms
(lags, p.p.)
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
Mar08
Jun08
Sep08
Nov08
Dec08
Jan09
Feb09
Apr09
May09
Jun- Jul-09 Aug09
09
Sep09
Evidence (4)
From a geographical point of view, the rationing affects almost
uniformly all the Italian macroareas, even though since last
June it has been more serious for Southern firms (whose size,
indeed, is lower than elsewhere in Italy).
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Mar- Jun- Sep- Nov- Dec- Jan- Feb- Apr- May- Jun08
08
08
08
08
09
09
09
09
09
North-West
North-East
Center
Jul- Aug- Sep09
09
09
South/Islands
Evidence (5)
Since the beginning of the (credit) crisis, the “strong” rationing has
been overwhelming the weak one (+26 p.p. in Mar.08 – Sep.08;
+11 p.p. in Nov.08 – Sep.09).
The relative importance of strong and weak rationing (in percentage of rationed firms)
100.0
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
Mar08
Jun08
Sep08
Nov08
Dec08
Jan09
Feb09
Strong rationing
Apr09
May09
Jun- Jul-09 Aug09
09
Weak rationing
Sep09
Evidence (6)
• But all that glitters, even for large enterprises, is not gold: they are less rationed than
in the past and with respect to SMEs, but at higher costs (especially in terms of higher
interest rates and real guarantees).
• SMEs, in turn, face usually higher interest rates than large ones do, so that there is
little room for further increases.
• No significant geographical effects.
Percentage of firms that obtained the loans, but at higher interest rate
10.0
9.0
8.0
7.0
Large
6.0
5.0
4.0
3.0
2.0
Medium
Small
1.0
0.0
Jun-09
Jul-09
Small
Aug-09
Medium
Large
Sep-09
Evidence (7)
Percentage of firms that obtained the loans, but with more real guarantees
3.0
Large
2.5
2.0
1.5
Medium
1.0
Small
0.5
0.0
Jun-09
Jul-09
Small
Aug-09
Medium
Sep-09
Large
(The SMEs are asked for more personal guarantees than real ones)
Evidence (8)
When the crisis is global, the firm’s internationalization (usually considered a successful
form of firm growth) can become a source of opacity in the relationship with the bank,
leading the latter to tighten the credit terms or to ration the firm.
In this case, the productive form of internationalization (the offshoring), implying higher
sunk costs and country-risk, is associated to the highest incidence of rationing.
Percentage of rationed firms, by type of internationalization
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Mar-08
Jun-08
Sep-08
National
Dec-08
Exporter
Feb-09
Jun-09
Exporter&Offshorer
Sep-09
Some conclusions
On the basis of the evidence from the ISAE’s sample, at least
two factors usually related to a credit crunch clearly appeared
in Italy in Fall 2008.
2) Even though in last months the credit access conditions
generally tended to improve, the situation is still far from the
pre-crisis one:
• the SMEs-large firms gap is widening,
• some geographical effects are appearing,
• where the strong rationing decreases, the weak one
increases.
3) The higher the degree of firms’ internationalization, the worse
the credit conditions faced by the Italian manufacturing firms.
1)