Italian Banks: Improved Operating Environment and Better Asset Quality Dynamics Underpinned 9M 2021 Results
The commentary analyses 9M 2021 results for the five major Italian banks: UniCredit, Intesa Sanpaolo, Banco BPM, Banca MPS and BPER. In DBRS Morningstar’s view, the improved operating environment coupled with better asset quality dynamics underpinned 9M 2021 results in comparison with 9M 2020.Summary highlights from the commentary include:
• Italian banks reported an aggregate net profit of around EUR 2.4 billion in Q3 2021, down 44% year-on-year (YoY), but up 135% YoY when excluding a sizeable positive non-recurring impact attributable to the acquisition of UBI Banca by Intesa Sanpaolo in Q3 2020. For 9M 2021, the aggregate net profit was around EUR 8.4 billion, up from EUR 3.7 billion in 9M 2020.
• In Q3, revenue generation was supported by the improved operating environment compared to the same period last year, which led to a significant rebound in net fees. Whilst net interest income (NII) remained pressured in Q3 YoY, we note that it increased for the second consecutive quarter.
• In our view, a potential hike in interest rates to counteract the higher inflation arising from the pandemic could be positive for banks with higher reliance on NII, if the impact from higher rates on the demand for new credit were manageable.
• Loan loss provisions continued to normalise, supported by a higher than previously envisaged improvement in the macro environment, better asset quality dynamics and contained loan quality deterioration from the expired moratoria.
“Whilst we recognise that the outstanding loans subject to debt moratorium could entail higher risk compared to those already expired, in our view banks should be able to withstand the negative impact from new NPL inflows and resulting need for higher coverage considering the current sound level of capital buffers” said Andrea Costanzo, Assistant Vice President from the DBRS Morningstar Global Financial Institutions team.
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