NewsEconomicsSolid accounts, the market promotes Italian banks

Solid accounts, the market promotes Italian banks

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The rise in interest rates decided by the ECB pushes the accounts of Italian banks. Frankfurt’s restrictive monetary policy had immediate positive effects on Italian banks, which were forced to work for years in a context of negative rates. With significant benefits on the interest margin of the second quarter. But the quarterly accounts presented to the market these days also show a cost of risk under control, to the advantage of capital ratios, and a solid capital position, which has made it possible to continue to distribute dividends and proceed with buyback plans. All this while advancing along the path of derisking and reduction of impaired loans. So much so that several banks listed on Piazza Affari were able to raise their financial targets for 2022. Results that were appreciated by the market, which rewarded the prices of Italian groups. The first element that stands out from the quarterly results of Italian banks, explains to Adnkronos Andrea Scauri, Italy’s share manager of Lemanik, a Luxembourg-based asset management company, is “the reactivity of some institutions to the increase in interest rates”. The interest margin “immediately acknowledged the increase in interest rates after it has been very difficult for banks to work at negative rates in recent years”. Furthermore, Scauri underlines, despite the expectations of a recession and an increase in the level of NPLs and non-performing loans, the cost of risk has “remained under control. And the fact that it has not increased has led to an increase in Cet1 and has given the possibility for various banks, such as Unicredit, to go ahead with buyback plans, something appreciated by shareholders and investors “. In the first half, and in the second quarter in particular, the performance of the Italian banking sector, agrees James Macdonald, senior corporate analyst at Bluebay Asset Management, “has continued to be very solid”. In line with the European ones, the Italian banks started the year “in a position of capital solidity”. Strong capital and cost of risk under control, with NPLs “continuing to decline”. Even the exposure to Russia of the two main groups, Intesa Sanpaolo and Unicredit, does not worry investors. The two institutions have written down their exposures, even completely, and now the Russia risk at the moment mainly concerns energy and commodities. In this context, continues the Bluebay analyst, “the only cloud on the horizon is perhaps a slowdown in commission revenues due to market volatility”. But, during the second half of the year, the benefits of the recent ECB hike will continue to manifest themselves and, if market volatility normalizes, “customers will reactivate and this will also have a positive effect on commissions”. For Macdonald “the cost of risk is also likely to remain low for the rest of the year, given the management overlaps already adopted, and therefore we expect the year’s results to be extremely solid”. But if 2022 doesn’t worry, the big question mark for investors is 2023. If rates stabilize in the euro area by the middle of next year and inflation peaked, the ECB could also decide to cut rates. “The market thinks one year in advance and this is a pro-market element, and less pro-banks, certainly to be considered”, explains Scauri. The flare-up of inflation in Europe is imported and is the result of the soaring cost of energy and raw materials. “The ECB has a little less need to raise rates than other central banks and will be more prudent. If you act on rates in a strong way, you could have an opposite effect compared to the one sought, with the risk of compressing growth. “. In any case, at the moment, banks and large companies are not yet seeing a recession coming. And the risk of a new explosion of NPLs in the balance sheets of credit institutions appears remote. “In the event of a very strong recession, the increase in NPLs and bad debts will have to be considered, but at the moment there is no evidence that there will be a peak”, underlines the manager of Lemanik. Another critical issue for Italian banks is the political factor and the early elections in September. Despite the very positive trends underway, “it is likely that the vote and any change of political direction from that taken by the Draghi government, together with the ongoing energy crisis in Europe, will continue to cast a shadow on the banking sector,” says Macdonald. However, she concludes, “as bottom-up fundamentals remain solid, any resolution of these looming macro factors is likely to have a very positive effect on investor sentiment.”

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