DBRS on Italian Banks
Strong Performance in H1 2024 and positive Outlook for the Full Year
According to recent research by DBRS Morningstar, the first half of 2024 showed strong momentum for Italian banks, with expectations that this positive trajectory will extend into the rest of the year.
Large Italian banks such as Intesa Sanpaolo, UniCredit, Banco BPM, BPER Banca, and Banca MPS collectively reported an aggregate net profit of EUR 6.6 billion for Q2 2024, marking a 15% year-over-year (YOY) increase. For the entire first half of the year, net profits reached EUR 12.6 billion, representing a 20% YOY growth. This impressive performance is driven by several factors, including increased core revenues, improved cost discipline, and reduced loan loss provisions (LLPs).
DBRS notes that higher net interest income (NII) and net fees played a key role in supporting revenue growth. In the first half of 2024, core revenues were up 9% YOY, largely due to resilience in net interest margins (NIM) and increased fees from asset management, investment, and bancassurance activities. The banks have also maintained effective cost controls, limiting the impact of inflationary pressures, new labor contracts, and IT investments.
LLPs decreased significantly during the period, reflecting the banks' stronger risk profiles and low default rates. DBRS highlights that the cost of risk (CoR) has also trended downward, landing at an average of 32 basis points (bps) in the first half of the year, down from 41 bps in 2023. Asset quality metrics remained stable, and non-performing exposures (NPEs) saw further reductions. The aggregate gross NPE ratio fell to 3.1% by the end of June 2024, a sharp decline from 9% at the end of 2019.
Italian banks also saw improvements in their capitalisation levels, with the fully loaded CET1 ratio reaching an average of 15.6% by mid-2024. Despite ongoing distributions to shareholders, the banks have continued to build their capital buffers, supported by organic capital generation. Liquidity remains sound, with customer deposits stabilizing after outflows, and funding reliance on the European Central Bank's (ECB) Targeted Longer-Term Refinancing Operations (TLTRO III) significantly reduced.
DBRS maintains a positive outlook for Italian banks for the remainder of the year, expecting that the current momentum will continue. Although loan growth has been sluggish, with contractions in household and corporate lending, a potential reduction in interest rates could help revive lending activity in the second half of the year.
In conclusion, Italian banks are well-positioned to maintain their profitability and stability through 2024, as long as the broader economic environment remains favorable. The combination of solid revenue growth, disciplined cost management, and lower risk costs has set a strong foundation for continued success in the near term.
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Relevant Links:
https://dbrs.morningstar.com/research/437648/italian-banks-h1-suggests-good-momentum-to-continue-in-2024
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