Bank of Italy research finds interest rate derivatives cut Italian non-financial firms' annual debt costs by about 20 per cent during monetary tightening

The Bank of Italy has published a research note on Italian non-financial companies' use of interest rate derivatives in 2021-24, finding that hedging materially softened the impact of the European Central Bank's 2022-23 tightening on borrowing costs. Since the tightening phase began in July 2022, firms using these instruments reduced the annual cost of debt by about 20 per cent on average, with the estimated benefit equal to roughly 100 basis points in 2023 and 70 basis points in 2024. Use of derivatives was widespread, especially among larger firms, and the note finds that hedging strengthened firms' financial positions. The analysis links granular EMIR derivatives data with AnaCredit bank loan data, the Securities Database and Cerved financial statements. At end-2024, Italian non-financial companies held almost EUR 350 billion of derivatives by gross notional, of which about EUR 230 billion related to interest rates. Interest rate swaps dominated these hedges, accounting for more than three quarters of interest rate derivative notional and 99 per cent of market value. Among the 20,248 firms appearing in both EMIR and AnaCredit at end-2024, bank exposure totalled EUR 177 billion and net interest rate swap notional EUR 104 billion, implying a hedge ratio of about 82 per cent against variable-rate bank debt, or 70 per cent when variable-rate bonds are included. Net cash flows from swaps moved from an outflow of EUR 830 million in 2021 to inflows of EUR 351 million in 2022, EUR 2.927 billion in 2023 and EUR 1.897 billion in 2024, and around 87 per cent of swap notional was contracted with the same banking group that provided the loan.