Italian Banks: Higher Interest Rates Underpin 9M 2022 Results; No Signs Yet of Asset Quality Deterioration
The commentary analyses the Q3 2022 results for the five major Italian banks: Intesa Sanpaolo, UniCredit, Banco BPM, BPER, and Banca MPS.Summary highlights from the commentary include:
• Italian banks reported an aggregate net profit of EUR 2.5 billion in Q3 2022, up 2% YoY, or up 16% when excluding the impact from Russia/Ukraine, the badwill from the acquisition of Banca Carige by BPER, and restructuring costs net of a positive tax impact at Banca MPS. Aggregate net profit was up 5.5% YoY in 9M 2022, or up 14% excluding these one-off items.
• Revenues for the nine months were supported by higher net interest income (NII) due to higher interest rates and higher volumes. The contribution to NII from TLTRO will decline going forward after the ECB's recent decision to change the conditions associated with it as part of its tightening in monetary policy to counteract high inflation.
• Loan Loss Provisions were up YoY in 9M 2022, however they reduced when excluding Russia and Ukraine, reflecting banks' improved risk profiles. The average annualised cost of risk in 9M 2022 remained below the level experienced in 2019-2021.
• Q3 2022 did not provide any indication of a deterioration in asset quality yet, while de-risking of direct exposures to Russia and Ukraine continued.
“9M 2022 results months showed higher net interest income, lower operating expenses, and lower underlying credit costs, while asset quality continued to improve” said Andrea Costanzo, Vice President from the DBRS Morningstar Global Financial Institutions team. “While the full benefit from the higher interest rates has not yet fully accrued, we expect the incremental benefit from any additional hike in interest rates to progressively decrease as part of the upside would be absorbed by increasing funding costs”.
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