(Tiper Stock Exchange) – The third quarter results of the Italian banks were solid thanks to higher interest margins, reflecting higher interest rates, operating expenses and controlled cost of risk. The trend in asset quality is unchanged, banks maintain solid capital buffers and this trend is expected to continue into 2023.
This is what a research by Scope Ratings on the Italian banking sectorrepresented by the eight major banks: Intesa Sanpaolo, UniCredit, BPM desk, Bank Monte dei Paschi di Siena, Mediobanca, BPER Bank, Emilian Credit And Banca Popolare di Sondrio.
Positive performance and solid capital
The average yield of the equity of this group of banks, in the third quarter, stood at 7.1%. The key factors of this strong performance – underline the analysts of Scope Rating – are represented by the rebound ofthe interest marginfrom the strong cost management and from provisions a low risk.
On the other hand, financial market volatility continued to weigh on commission and trading income, which trended downwards for most banks, and continued to weigh on asset management product sales, managed volumes and performance fees. But banking and payment services fees have grown, in the wake of a resilient Italian economy, assisted by a tourist season that has benefited from the full post-pandemic reopening.
“If the economy takes a turn for the worse, the banks are well capitalised. Major Italian banks held an average MDA buffer for CET1 requirements of around 590 basis points in September 2022, a level we consider comfortable,” he says Alessandro Borattianalyst at Scope Ratings.
Dividends yes with caution
Some banks have significant reserves for their own capital requirements and for their own internal goals, so they can continue to pursue distribution plans and even one-time dividends or buybacks of treasury shares. The supervisory authorities however, they showed some concern about the tightening economic outlook and therefore have urged banks to be cautious on forecasts and cautious on distribution plans.
“We do not expect new blanket bans on ‘Covid-style’ dividend distributions, but we support the view of supervisors that, in the face of heightened macroeconomic uncertainty, aggressive payment commitments could reduce banks’ room for maneuver “, underlines Boratti.
And what do we expect for 2023?
Despite the deteriorating macro environment, Scope remains positive on perspectives of Italian banks and states that the prospects for income “they look rosy”. “A higher-than-expected increase in interest rates – explains Boratti – could increase interest income by up to 25% in 2021”.
There profitability of banks in 2023 will be conditional mainly by two factors: the reflection in the balance sheet of a more favorable interest rate environment, which will continue to drive revenues; a potentially higher risk costalso in relation to the exit plan from the TLTRO operations and the banks’ need to seek alternative sources of financing on the capital market.
“We are be cautious about the risks arising from a deterioration of the macroeconomic outlook. A recession would hurt banks in multiple ways – loans, fees and commissions, and credit costs – leading to lower net results. Targeted fiscal measures to support households and businesses at a time of high energy prices could be key to preventing a wave of loan defaults,” concluded Boratti.