There is not much to Loreggia, a small well-banked town about 15 miles from the Italian city of Padua, whose 6000 inhabitants can choose between four different banks. The Banca di Credito Cooperativo (BCC) dell’Alta Padovana, a 27-branch co-operative founded in 1896, is truly local, with its head office in Campodarsego, a small town on the road to Padua. With about €1bn in deposits, a similar amount in loans and assets pushing €200m, the BCC dell’Alta Padovana seems to be a typical small bank. But there is more to it than meets the eye: it is also a standard-bearer of an important part of the country’s credit system.
Loreggia has a claim to fame: it is of unique historical importance in Italian banking. Italy’s first co-operative bank was founded there in 1883 by Leone Wollemborg and a group of about 30 farm workers and small landowners. They had imported an idea first put into practice in Germany: the rural savings bank that Friedrich Wilhelm Raiffeisen launched in the Rhine valley in the middle of the 19th century to deal with usury and the difficulties of farmers in financing their businesses.
Agriculture is no longer the driver of Italy’s economy that it once was, but co-operative banks (banche di credito cooperativo) have spread widely since that first seed was planted and they still flourish, as the raw figures of the movement at the end of last year clearly show: 438 co-operative banks; five million customers; 805,000 members and 30,000 employees.
With €107.5bn of customer deposits, the co-operative banks had a market share of 8.4% and their loans of €93.2bn were equivalent to 6.6% of the market in 2006. Their 3750 branches mean that credit co-operation is found almost everywhere in Italy. Indeed, a co-operative is the only bank in more than 500 of Italy’s communes.
Branch control
Twenty or so years ago, Italian banking was far more tightly regulated than it is now, and the Bank of Italy issued branch plans to control where and when branches could be opened and by whom. Since the last piano sportelli (branches plan), in 1989, the number of branches in the country has doubled and co-operative banks have contributed more than their share to this. Twenty years ago their 1400 or so branches accounted for 9% of the total number of bank branches in Italy; the current 3750 are 11% of the total. As the number of branches has risen, so mergers have cut sharply into the co-operative banks’ ranks – the number of banks has fallen from a peak of 726 in 1987 to today’s 438.
“My bank is typical in this,” says Alessandro Azzi, chairman since 1991 of Federcasse (The Italian Federation of Co-operative Credit Banks). His eyes light up when he talks about the BCC Colli Morenici del Garda, of which he has been chairman since 1985. His bank began in 1895 as the Cassa Rurale di Montichiari, a town just south of Lake Garda in northern Italy. It merged in 1970 with the banks of Calcinato and Molinetto, two nearby villages. Then, in 1995, that entity merged with the BCC del Garda, itself the result of a merger of two small banks. With 26 branches, BCC Colli Morenici del Garda is now one the credit co-operative movement’s large institutions. Its deposits, loans, number of members and number of customers are also well above the average.
Participation in banks
Mr Azzi is keen on getting members to participate in their banks. “We are very committed to this – it is a fundamental part of the credit co-operative movement – and at my bank we usually have about 1000 members at the annual meeting. The key is to keep speeches short and add some interest. We project films showing what we are doing and offer prizes for attendance.”
One person who attended the bank’s annual meeting in May was a carabiniere military policeman, who disarmed a bank robber. “It is my bank,” the carabiniere told journalists. Now he is more than just a customer – the bank’s board made him a member.
“By law, at least 70% of profits go to reserves. Unlike the banche popolari (mutual banks), many of whose shares are listed and whose shareholders hope to earn capital gains, remuneration of our members’ capital is modest, just the legal interest rate,” says Mr Azzi. And, unlike shareholders of the banche popolari, members of the co-operative banks do not get much by way of dividends. However, as banks’ customers, members enjoy banking conditions that are far better than those offered by commercial banks.
“It is marvellous to attend the annual meeting and experience economic democracy in action,” says Mr Azzi. Such events highlight the intimate ties that the banks have with the local communities where they operate.
Those ties are strengthened by the allocation of part of profits to funding works for the community. Mr Azzi’s bank provided most of what was needed to buy a CAT scanner for the local hospital, thus allowing patients to avoid the lengthy journey into the city of Brescia. It has also funded a rehabilitation scheme for detainees in Brescia’s prison. “We see the bank as having a social role as well as an economic role,” says Mr Azzi. Both roles are enhanced by the legislation that governs how Italy’s credit co-operatives work.
Every bank’s articles of association must define the geographical area in which it can operate. The BCC del Garda operates around the south-western corner of Lake Garda, with all but one of its branches in Brescia province, the exception being in Lazise in Verona province on the lake’s eastern shore. “We can only expand into neighbouring areas. This is the law. What sense would there be to have a branch in Rome?” says Mr Azzi.
“By law, at least 95% of our loans must be in the area defined in the articles of association. People who deposit their savings with us know where they are being lent,” he says. Such is the relationship between people, their savings and the local economy that is mediated by co-operative banks.
That seems more important in some parts of Italy than in others. “The casse rurali [rural co-operative banks] have two-thirds of the market in Trentino,” says Giuseppe Zadra, director-general at Associazione Bancaria Italiana, the association of Italian bankers (see below). And in the German-speaking neighbouring province of Bolzano, the casse raiffeisen – as the banks are called there – account for nearly one half of the province’s bank branches. “The Austrians left us two fine institutions: the fruit and wine agency and co-operative banks,” he adds. (Both Trento and Bolzano were part of Austria until the end of the First World War.) Between them, the two provinces have 100 credit co-operatives; Lombardy, a large region and Italy’s wealthiest, can muster only 49.
Small affairs
Like the two-branch bank where Mr Zadra has his account in Denno, most of the casse rurali/raiffeisen in Trento and Bolzano provinces (allowed to keep their names when a banking law in the early 1990s changed it elsewhere in Italy to banche di credito cooperativo) are small affairs. Some are even smaller than the two-branch bank used by Mr Zadra. The casse raiffeisen in Andriano and Campo di Trens, and the casse rurali in Brentonico and Mezzocorona, along with several others, have just one branch.
There are some larger banks: the BCC di Brescia has 35 branches and the BCC di Alba Langhe e Roero, in wine-growing areas south of Turin, has 46 branches. However, appropriately enough, the category’s giant is in Rome, a bank with more than 100 branches, which was created since the early-1990s through numerous mergers and salvage operations of banks that had run into difficulty.
Smallness means lack of scale and, superficially at least, the impossibility of offering a wide range of services backed by modern technology. “We have got around that through the Federcasse association,” says Mr Azzi. Outsourcing by banks is one key and another is Federcasse itself and its associated companies, which provide the banks with services for running their businesses and products for selling to their customers.
BCC Gestioni Crediti, for example, offers the management of problem loans, Cesecoop provides back-office services, as does Incra, and Iccrea acts as the BCC’s own bank. Iccrea’s subsidiaries, which include BCC Gestione Crediti, are involved, among other things, in leasing, fund management and insurance.
“Co-operative banks would be hammered by the competition if they could not offer the services and products that customers expect nowadays,” says Mr Azzi. “And here is the centre of the nervous system of the banks, where the IT is concentrated.” Federcasse occupies a sparkling new office block on Rome’s outskirts, from which many of the services and products are provided.
Higher risks
However, small size does seem to create higher risks, as data from the Bank of Italy’s supervisory service shows. In its annual report last year (this year it has not published a summary), the central bank reported that a total of 23 banks were in compulsory liquidation at the beginning of the year and 17 of those were BCCs. There were also four banks in special administration, all BCCs.
Moreover, problems seem to arise far more often in the south than in the north. Perhaps that is to be expected because the southern economy is much weaker than the northern, but there is also the perennial problem of the Mafia (Cosa Nostra).
Ten years ago, a BCC near Palermo was found to have been cosy with Cosa Nostra. And the BCC Sofige Gela on the south coast of Sicily, an area of extremely high ‘Mafia density’, was placed in special administration just over two years ago after anti-Mafia investigators found that it had been infiltrated. The bank was sequestered and a special commissioner installed. The investigators placed bugs and were subsequently able to overhear the employees, one of whom asked: “Do only we have this kind of client? Aren’t there other banks more mafiose than us?”
Such situations probably make the righteous members of the co-operative banks in the former Austrian-ruled provinces wonder what company they are keeping. Yet it is not just the Mafia in the south that raises concern, but also the broader willingness to step over the legal line encountered south of Rome. “It is harder to be a local bank in the south than in the north,” Mr Azzi admits.
Nevertheless, the BCCs are generally a robust category of bank. Tax breaks mean that 70% of profits, which go straight to reserves, are exempt. “We have a guarantee fund but this does not just get involved after crises strike – it continuously monitors banks’ health,” says Mr Azzi.
Despite the occasional crises in southern BCCs, with an overall capital ratio of about 16%, Italy’s co-operative banks stand on a solid base and, drawing customers mainly from business, are a long way from the struggling rural client-base with which they began.
WHERE FARMERS AND SOPHISTICATED BUSINESS PEOPLE RUB SHOULDERS
| Giuseppe Zadra has been director-general of Associazione Bancaria Italiana (the Italian banking association) since 1992 and, before that, for seven years he was head of the market division of Consob, Italy’s stock market regulator, where he oversaw the country’s big bang. And his bank? The two-branch Cassa Rurale Bassa Anaunia, where his 97-year-old mother is the bank’s oldest member. |
“I grew up with the bank,” he says with a smile.
Not long after the Second World War when a credit co-operative was looking for premises in Denno, a small village of about 1100 inhabitants in the mountains near Trento in north-east Italy where Mr Zadra grew up, it rented space under his family’s house in the main square. “That part of our house was known as the potato vault. Its window became the bank’s door,” he says.
Denno’s little bank has moved since then, and merged with the equally small Cassa Rurale di Vigo d’Anaunia of nearby Ton in 1993, but plays the same role in the local economy that it always has. “Banks like this are totally immersed in their local societies and economies. Everybody knows everyone else, who owns which plot of land, who are cousins of whom, and that is important even in today’s banking world. Bankers need to know their clients and how their clients are faring,” says Mr Zadra.
About 20 miles north-west of Trento, Denno is in the Val di Non, a major fruit-growing area where the prosperous local economy turns around its apples. Rolling fields, orchards and a mountain backdrop: the village would fit well in The Sound of Music. But just because it is tiny and serves a rural community does not mean that Denno’s cassa rurale offers banking services that are backward. “I went to Harvard Business School in 1971 to obtain an MBA, organising everything with the bank before I left,” says Mr Zadra. “Punctually, each month, my funds arrived in Harvard.”
For businessmen and tourists who had anything to do with the turbulent Italian banking system in the 1970s, such an experience would have seemed miraculous.
