DBRS on Italian Banks
Higher Net Interest Margins And Lower Underlying Credit Costs
DBRS published a commentary that analyses the FY 2022 results for the five major Italian banks: Intesa Sanpaolo, UniCredit, Banco BPM, BPER, and Banca MPS.
Large Italian banks (Intesa Sanpaolo, UniCredit, Banco BPM, BPER, and Banca MPS) reported an aggregate net profit of EUR 3.9 billion in Q4 2022, which compares with an aggregate net loss of EUR 0.7 billion in Q4 2021 (Exhibit 1). For FY 2022, aggregate net profit was EUR 12.8 billion, up 66% Year-on-Year (YoY), or up 80% excluding the impact from Russia/Ukraine, the badwill from BPER's acquisition of Banca Carige, and restructuring costs net of a positive tax impact at Banca MPS. Overall, results in 2022 benefitted from higher revenues, flat operating expenses, and lower underlying credit costs.
Revenues for the FY 2022 were underpinned by higher net interest income (NII), reflecting the accelerated interest rate hikes in H2 2022. The full benefit from higher interest rates will be visible in the coming quarters, however, we expect the likely increase in the sensitivity of deposits and wholesale funding to the updated interest rates to curtail part of the upside. In our view, cost optimization measures will remain key addressing high inflation, customers' higher energy bills, digital investments, and more stringent practices regarding the transition to a sustainable economy.
Loan Loss Provisions (LLPs) were up YoY in FY 2022. Excluding Russia and Ukraine, however, LLPs decreased driven by improved risk profiles. Q4 2022 saw an uptick in LLPs compared to the previous quarter due to seasonality, and a pre-emptive approach towards future risks. The average cost of risk in 2022 remained below the levels reported in 2019-2021 and banks are guiding for a further reduction in 2023, as provisions for Russia and Ukraine, and for future de-risking should affect the sector less. Nonetheless, in our view, the cost of risk could increase in the coming quarters should the economy slow down more than expected and default rates deviate materially from current levels. Asset quality metrics improved further in Q4 2022, and capital buffers remain sound.
“FY 2022 results benefitted from higher revenues, flat operating expenses, and lower underlying credit costs,” said Andrea Costanzo, Vice President of the DBRS Morningstar Global Financial Institutions team. “The full benefit from higher interest rates will be visible in the coming quarters, however, we expect the likely increase in the sensitivity of deposits and wholesale funding to the updated interest rates to curtail part of the upside”.
Link to the Report
https://www.dbrsmorningstar.com/research/409760
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