In the 1990s the banks established in the Italian South have reduced their cost-income ratios and improved their ability to screen customers, increasing profitability. The spread between the loan rates in the South and North has narrowed substantially. Taking into account differences in the size and industry composition of firms in the two areas, the spread is currently equal to 0.90 percent. The growth of loans in the North has outpaced that in the South, but this divergence is merely a reflection of the greater proportion of new bad loans in relation to total lending in the South. Since the mid-1990s in the South the ratio of loans to local firms to funds raised locally has increased from 75 to 85%. The lower value of the ratio in the South reflects structural features of the Southern economy and the way in which loans are allocated geographically in financial statistics.