Italian Banks: Strong 2023 Results
May be helpful to face Likely Less Benign Environment in 2024
DBRS Morningstar published a commentary on 2023 results for the five major Italian banks: Intesa Sanpaolo, UniCredit, Banco BPM, BPER Banca, and Banca MPS. Last year’s positive performance places Italian banks in a good position to navigate a likely less benign environment in 2024”.
Prominent Italian banks, including Intesa Sanpaolo, UniCredit, Banco BPM, BPER Banca, and Banca MPS, disclosed a collective net profit of EUR 6.3 billion for the fourth quarter of 2023, marking a 62% increase from the previous year. When adjusting for specific one-time factors, the year-over-year net profit still rose by 38%. The total net profit for the fiscal year 2023 reached EUR 22.1 billion, reflecting a 73% increase, or a 57% rise when excluding exceptional items. This financial performance was bolstered by enhanced revenues, effective cost management, and a reduction in loan loss provisions, resulting in an average Return on Equity of 14.5% for 2023, a significant rise from 7.7% in 2022.
The operating profits of these banks were positively impacted by an increase in net interest income, consistent net fees, and stringent cost controls. Despite expectations of a peak in net interest income and a potentially less favorable trend in upcoming quarters, it's anticipated that the net interest income will not decline in 2024 due to sustained margins and strategic hedging against lower interest rates.
Loan loss provisions saw a decrease both in the fourth quarter of 2023 and throughout the fiscal year, attributed to improved risk profiles and a favorable operating environment. The average cost of risk was lower than in previous years, with an expectation of a slight increase in 2024. Asset quality also saw improvements in 2023, even amidst higher interest rates and a slowing economy, which led to a decrease in loans.
In 2023, Italian banks exhibited enhanced asset resilience and capitalization, crucial for facing uncertain future conditions. The default rate was consistently low at about 1%, with a significant 9% yearly decrease in total non-performing exposures by year-end, attributed to effective management and asset disposals. Since the end of 2019, there's been a notable 63% drop in these exposures, reducing the average gross non-performing exposure ratio to 3.1% by the end of 2023, a decrease from previous years. The net ratio of these exposures also saw a slight improvement, maintaining a solid coverage ratio.
The impressive performance of these banks throughout the year facilitated continuous capital growth, enabling them to reward shareholders through dividends and buybacks without compromising their capital strength. The Common Equity Tier 1 (CET1) ratio saw an increase, indicating a robust capital buffer significantly above regulatory requirements. This financial robustness, combined with an improved risk assessment, equips Italian banks to adeptly manage the challenges of a potentially tougher economic landscape in 2024.
Relevant Links:
https://dbrs.morningstar.com/research/428033/italian-banks-strong-2023-results-help-banks-navigate-the-likely-less-benign-environment-in-2024
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