By Eamon Quinn
Despite facing Europe’s worst financial crises since the crash and a surge in its sovereign bond yields, Italian mortgages are still about a third less expensive than those in Ireland, new official figures show.
Italian banks charged slightly higher loan rates to lend to families and companies in August, the figures showed, in a sign that market turmoil is seeping through to the real economy.
The Bank of Italy said banks based in the country charged on average 1.55% on loans to non-financial companies — ordinary companies — in August, up from 1.48% in July.
The average rate on house mortgages edged up to 2.21% from 2.15%. Loan volumes remained broadly stable from the previous months and so did deposits by Italian residents.
Italian banks have been hit by a selloff of Italian assets driven by investor concerns over the new anti-establishment government’s plan to ramp up spending and expand the budget deficit.
And the bond crisis for Italy has deepened as Rome digs in its fight with the EU over is proposed budget spending.
However, Brendan Burgess, founder of askaboutmoney.com, said despite the crisis, Italian mortgage rates were still a third less than those offered by Irish lenders.
“It shows there is no justification at all for the Irish rates. I would like to know whether the Italian banks’ cost of loans has gone up,” Mr Burgess said.
Irish banks may be justified in charging relatively more for mortgages on borrowings of 90% of the home value, but not on 50% of the property’s value, he said.
Central Bank studies have repeatedly shown that Irish house borrowers and SMEs pay among the highest costs for their loans in Europe, a hidden penalty for households and small firms doing business in Ireland.
The lenders have in the past justified the higher costs of loans in Ireland during the era of cheap money by the European Central Bank on elevated risks and on the relatively higher levels of capital buffers they are required to carry by Irish regulators to carry.
Irish 10-year bonds trade at well below 1%, compared with almost 3.5% in Italy.
Italy’s ruling coalition said it would not backtrack on plans to increase its budget deficit against criticism from the EU and its own budgetary office.
Meanwhile, Wall Street stocks were hammered as investors dumped high-growth names such as technology and ‘Faang’ stocks, with rising US Treasury yields and trade-related worries sapping their risk appetite.
The benchmark S&P 500, the Dow Jones and the Nasdaq dropped from their all-time highs. All three indices hit records between August 30 and October 3, despite the escalating Chinese-US trade dispute gnawing at confidence on corporate profit growth through most of the year.
However, a recent IMF warning on global growth taking a hit from trade disputes has hit confidence in the stockmarket, as has US Treasury yields at more than seven-year highs, signalling a tightening of capital globally.
“It’s a risk-off environment as investors are focusing on spiking yields and taking profits off the table as they are concerned about whether the bull market is actually coming to an end,” said Ryan Nauman, market strategist at Informa Financial Intelligence.
- Additional reporting Reuters