Banca Progetto's recent crisis marks a seismic shift in Italy's financial landscape.
On March 21, 2025, Italy's central bank, Banca d’Italia, intervened, placing the digital bank under special administration due to serious financial and judicial irregularities. Though once a prominent player in financing small and medium-sized enterprises (SMEs) with backing from the Mediocredito Centrale, the bank's struggles threaten to expose this vital segment of Italy's economy to a significant liquidity and competitiveness crisis.
The turmoil within Banca Progetto has culminated from months of investigations revealing numerous credit operations worth millions of euros that were allegedly tied to organized crime. The Court of Milan had already ordered the bank's judicial administration in 2024 to assess the robustness of its internal controls. The situation worsened when the CEO resigned amid criminal convictions related to other matters. Recently, the bank's management faced legal notices regarding purported crimes in disbursing unpaid loans, prompting the initiation of public guarantees.
As of December 31, 2023, Banca Progetto held a portfolio of loans to SMEs totaling €6.9 billion, accounting for about 5% of the loans guaranteed by the Mediocredito Centrale. Despite reporting a net profit of €71.9 million in 2023, a 38.3% increase from the previous year and reportedly preparing for a stock market debut in March 2024, the rapid decline of Banca Progetto has unveiled serious vulnerabilities within the digital banking sector.
Since their emergence in 2011, digital banks have transformed credit access for SMEs, compensating for traditional banks' gradual withdrawal. According to the Guarantee Fund, guaranteed financing had soared to around €40 billion by the end of 2023, with a significant portion facilitated by these newer financial institutions. The entire credit market for SMEs—factoring in state guarantees—has exceeded €60 billion in loans dispensed. Without prompt corrective actions, the crisis surrounding Banca Progetto risks spiraling into broader chaos.
Digital banks have employed streamlined processes and advanced algorithms for credit assessment, improving credit accessibility for SMEs. However, the fundamental business model, heavily reliant on government-backed financing, has left the sector exposed to considerable risks. Poor risk selection has become apparent due to the presumption of state support in cases of default, creating a perilous cycle now coming to the forefront.
In light of Banca Progetto's downfall, other digital banks have taken drastic measures to mitigate risks, including heightened documentation requests and stricter fund destination verifications. This has significantly hampered SMEs' access to financing, exacerbating their existing liquidity crisis. Meanwhile, traditional banks, already reluctant to finance SMEs due to their lack of expertise in evaluating smaller businesses, are further scaling back their exposure as well.
The ongoing mergers in the banking sector—such as Unicredit-Banco BPM, BPER-Banca Popolare di Sondrio, and MPS-Mediobanca—are exacerbating this trend, concentrating credit towards mid-sized and large enterprises at the expense of SMEs.
The ramifications of this "credit crunch" could be severe: increased insolvencies as SMEs struggle to secure necessary capital for daily operations, a decline in investments due to uncertainty surrounding credit access, and a contraction in employment within a sector that is Italy's leading employer. The crisis of Banca Progetto, while seemingly an isolated event, serves as a stark warning signal, exposing systemic fragilities within the credit market for SMEs.
The tightening of oversight, while essential to prevent future financial scandals, has inadvertently immobilized credit flows to both digital banks and traditional lenders. There is a pressing hope that the lessons learned from this crisis will not utterly damage the digital banking sector and its associated state guarantees, essentially throwing out the baby with the bathwater. The immediate capacity of SMEs to secure funding for growth and sustainability stands seriously jeopardized, and the impact of this crisis will soon be visible.
