Italian banks’ support for corporate internationalisation subject to “genetic change”, ABI says

The strategic model according to which the Italian banking sector supports foreign efforts of domestic corporates has undergone “a genetic change”, with banks looking to develop an advisory and partnership relationship with the client.

Speaking in Milan at the ‘Primavera nel Med-Golfo’ conference, Pierfrancesco Gaggi, head of international relations for the Italian banking association ABI (Associazione bancaria italiana), said that Italian banks have changed the way they finance the corporate internationalisation process.

The association regularly surveys the foreign exposure of the domestic banking sector and is working to foster the internationalisation process of domestic Italian banks.

“Over the past few years, Italian banks have developed a very expensive and inefficient network of foreign branches. Those networks are now being dismantled, as our banks have developed a new approach to the financing and assistance of Italian corporates in their expansion towards emerging markets,” Gaggi said.

In the ‘old way’, the cost structure was increased by different legal compliance requirements in each jurisdiction, with a much higher break-even for each foreign branch of the bank.

Financial institutions have made an effort to reduce this cost base and have found a new low-cost model to support the entrepreneurial initiative.

“Increasingly, Italian banks serve their corporate clients from domestic offices, acting as business consultants and partnering with them to develop a business plan. In a second phase, the bank links its client to a local correspondent bank in each country, coordinating the process from home,” Gaggi said.

The biggest Italian banks have also pursued an international consolidation strategy, including UniCredit and IntesaSanpaolo, which over the last few years have completed a number of acquisitions in Northern Africa and Central and Eastern Europe.

Meanwhile, Gaggi admits that Italy is lagging behind when it comes to the implementation of Islamic finance investment tools into the country’s legal and fiscal system.

“Islamic finance was introduced in Italy in 2007, when ABI started to discuss the optimal way to offer to Italian corporates Islamic finance products, partly to reduce the liquidity shortage that the industry was starting to experience at the time,” he said.

In 2008, ABI launched a feasibility study to define the optimal plan to introduce the sukuk, the Islamic equivalent of a bond, into the Italian market.

“Changes in the legal framework were needed to make sure the use of the sukuk was cheaper for corporates compared to the more traditional Italian bonds. We found that the use of this tool was allowed by the current legal framewok by breaking the tool into segments, but questions were still to be answered regarding the fiscal definition of the new instrument” Gaggi said.

He added that, as has already happened in the UK, an ad hoc legislation would have to be introduced in Italy in order to make sukuk bonds more appealing to the market. 

Political changes and the onset of the global financial crisis halted the development of this sector in 2010. Gaggi said: “We still have to introduce the rules necessary to implement sharia-compliant instruments in the market. There is now renewed interest, and we are waiting for the political support in order to relaunch the process again,” he said.

 

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