Italian Banks: Higher Net Interest Income To Offset Risks From Weaker Economic Prospects

The commentary analyses the impact from the rise in interest rates for the five major Italian banks: Intesa Sanpaolo, UniCredit, Banco BPM, BPER, and Banca MPS.

Summary highlights from the commentary include:

• After a decade of ultra-low interest rates, the European Central Bank’s (ECB) interest rate increases are boosting Italian banks’ net interest income (NII), thanks to the high proportion of interest-earning assets which tend to reprice faster than liabilities until rates reach certain levels.

• Based on the higher interest rate environment and internal assumptions around the impact on funding costs, the aggregate increase in NII for the Italian banks should be around EUR 4.2 billion in 2023, representing approximately 19% of aggregate NII in 2021, and around 59% of aggregate net attributable income in 2021.

• In our view, the incremental benefit from any additional hike in interest rates will progressively decrease as part of the upside will be absorbed by higher funding costs. Also, we expect the boost to NII from the ECB's Targeted Long-Term Refinancing Operations (TLTRO) programme to disappear after the recent recalibration of its conditions.

“We see the upward trend in net interest income as a lever for Italian banks to absorb increased risks due to an expected deterioration in economic prospects in 2023,” said Andrea Costanzo, Vice President from the DBRS Morningstar Global Financial Institutions team. “In addition, Italian banks are entering this new phase of high economic uncertainty with stronger risk and capitalisation profiles compared to the past, due to the progress made in de-risking.”