Italian Banks: sound but Risks Are Rising

Scoper Ratings Quarterly Report

Italian banks delivered a robust start to 2025, outperforming most of their European peers, but rising macroeconomic and political risks could challenge their resilience in the coming quarters, according to Scope Ratings' latest Italian Bank Quarterly report.

Solid Fundamentals, Record Profitability

Scope Ratings reports that the country’s top eight banks—including UniCredit, Intesa Sanpaolo, and Banco BPM—posted a combined return on equity of 15.7% in Q1 2025, up from 14.5% a year earlier. This performance was driven by resilient fee and commission income, continued cost discipline, and a historically low average cost of risk of just 26 basis points.

While net interest income (NII) declined across most of the sector due to falling ECB rates, banks like Banca Popolare di Sondrio (BPSO) defied the trend with YoY growth in NII on the back of increased loan volumes. Notably, fee income grew by 7.5% YoY and net asset inflows reached nearly EUR 8bn, underlining a strategic shift toward non-interest revenue streams.

M&A Activity Adds Opportunity—and Uncertainty

The wave of mergers and acquisitions sweeping the sector has the potential to reshape the competitive landscape, though execution risks are intensifying. “We consider in-market consolidation credit-positive,” Scope Ratings notes, “but strategic missteps and political interference could derail some deals.”

Noteworthy moves include Mediobanca’s proposed share-swap acquisition of Banca Generali, and UniCredit’s contested bid for Banco BPM. The Italian government has imposed conditions on the latter deal, citing public interest and geopolitical considerations, including UniCredit’s Russian exposure and control over asset manager Anima.

Geopolitical and Macro Headwinds

Looking ahead, Scope cautions that worsening global conditions—particularly a potential trade war with the United States—could pressure credit quality and margins. “We expect limited asset-quality deterioration in 2025, with risks skewed to 2026,” the report states. Italian SMEs, especially those in export-heavy sectors like automotive and food, are seen as particularly vulnerable.

Still, the average non-performing loan (NPL) ratio remains at a record low of 2.8%, and the CET1 ratio averaged 15.6% in Q1. Liquidity positions also remain strong, with an average Liquidity Coverage Ratio (LCR) of 156% and Net Stable Funding Ratio (NSFR) of 127%.

Outlook: Resilient but Vulnerable

Scope Ratings has maintained stable outlooks for major Italian banks, including UniCredit (A/Stable), Intesa (A/Stable), and Banca Popolare di Sondrio (BBB/Stable). However, the agency warns that falling interest margins, regulatory shifts, and unpredictable geopolitics could create a tougher environment as the year progresses.

“After a record first quarter, Italian banks are well-positioned but not immune to the growing external pressures,” Scope concludes.

Entering Italian NPE Market is a Newsletter and a Linkedin Group focused on News, Updates, and Insights on Italian Banks, Distressed Credit Markets, Fintech, and Real Estate.

Relevant Links:

https://scoperatings.com/ratings-and-research/research/EN/178806

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