(Tiper Stock Exchange) – The outlook for 2023 for Italian banks is “promising” thanks to a higher than expected interest rate increase which will increase the net interest income by 10%-20% compared to 2022 and a lower risk of recession, which is positive for new business, fee income and cost of the risk. He claims it Scope Ratings in a new report on the subject, where the excellent performance in the last quarter of 2022.
The performance of Italian banks was “solid” in the last three months of last year, reaching a Average ROE of 9.3%, reads the report by Marco Troiano and Alessandro Boratti. Q4 net interest income grew at a faster pace QoQ and YoY, reflecting not only theincrease in the Euribor but also aacceleration of asset repricing. Margins on origination and the floating rate portion of the loan stock are expanding rapidly, while deposit rates have only just started to rise.
THE income from fees and commissions they registered one downward trend for most banks, as weak financial market performance weighed on asset management product sales, managed volumes and performance fees. The positive performance of Mediobanca thanks to advisory and asset management activities. Also Banca Popolare di Sondrio it showed QoQ and YoY increases as it earns most of its fees from traditional banking services, which performed well.
The effects of inflation have started to show in the fourth quarter numbers. UniCredit and others saw wage increases linked to inflation, while others saw higher administrative expenses. In some cases, such as Mediobanca, the increase in costs is due to business growth and variable remuneration. Nonetheless, the cost/income ratio industry average decreased from 62.9% in Q4 2021 to 53% in Q4 2022
According to Scope Ratings, the profitability of Italian banks in 2023 will be driven mainly from three factors: repricing of the balance sheet for the more favorable interest rate environment, which will continue to support revenues; a progressive repricing of deposits will limit the benefits of rate hikes (deposit beta); potentially higher cost of risk if the economy slips into a recession.
“Our outlook on banks is constantly improved in recent months as policy rates have risen to higher levels than initially anticipated and the specter of high credit defaults has faded,” said Alessandro Boratti, an analyst on Scope’s banking team.
However, the expert points out a few downside risks. “The latest loan survey data provides a bleak outlook for loan origination in the coming months, particularly in the retail segment,” he explained. “Furthermore, the rising cost of debt combined with tougher credit standards will cool lending.” to businesses. Meanwhile, bank funding costs are rising, not only due to the repricing of deposits, but also due to the higher cost of wholesale debt.”