The demand for bank loans in Italy at national and macro-regional level (1984-96)

Bank lending expanded rapidly in Italy in the second half of the 1980s and early 1990s. By contrast, in the four years 1993-96 it rose moderately, and in real terms it diminished. The paper addresses some questions in the light of these trends: Was there a structural change in firms’ demand for credit after 1993? Are there systematic differences in the parameters of the demand for loans in the different parts of Italy? If such differences do exist, how have they influenced recent developments in credit? The evidence presented delineates a rather clear picture. At national level the demand for loans was stable during the observation period. The deceleration in lending is ascribable in small part (about 3 percentage points on an annualized basis ) to the increase in the opportunity cost of loans; it was due largely (about 10 percentage points on an annualized basis) to the sizable decrease in business investment in relation to firms’ gross margins. The demand for loans displays differing characteristics in the different parts of Italy. In particular, its elasticity to interest rates was lower and its elasticity to investment higher in the North-East than in the other parts of the country. It is possible that changes occurred in the demand function in the North-West and the Centre.