Italian Banks Maintain Adequate Capital Buffers but are Vulnerable to Future Asset Quality Deterioration
Owing to the still uncertain economic impact from the coronavirus disease (COVID-19), the European Central Bank (ECB) recently extended its recommendation for banks to suspend dividend distributions and share repurchases to end-September 2021. For those banks that do restart payments to shareholders, dividend distributions and share repurchases should not exceed the lower of 15% of cumulative profits in 2019 and 2020, and 20 bps in terms of CET1, according to the regulator's guidelines. We believe this will have only a moderate impact on the current adequate capitalisation of Italian banks, which reported average phased-in CET1 and Total Capital ratios of 15.6% and 18.8% respectively at end-September 2020. Our view primarily reflects the fact that the maximum pay-out level recommended by the ECB is fairly low and some Italian banks are already excluding accrued dividend distributions for 2020 from the computation of their capital ratios.
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