Italian Banks: Higher NII, Cost Control And Lower Credit Costs Support Q1 2023; Outlook Remains Stable

The commentary analyses the Q1 2023 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 4.8 billion in Q1 2023, around three times higher than in Q1 2022, or up 51% YOY excluding provisions for Russia in Q1 2022.

• Higher net interest income (NII), resilient fee income and cost control supported operating profits in Q1 2023.

• Loan Loss Provisions were down YOY in Q1 2023, however they were up YOY excluding Russia, reflecting higher concerns around future asset quality dynamics. Asset quality was sound in Q1 2023, although it is showing the first signs of pressure.

• Capital buffers are robust and the sector’s liquidity remained sound despite some deposit outflows and TLTRO III repayments.

“Q1 2023 results benefitted from higher revenues, cost control, and lower credit costs” said Andrea Costanzo, Vice President from the DBRS Morningstar Global Financial Institutions team. “After recent strong increases, we expect NII to gradually stabilise in coming quarters, reflecting our view that the pressure on funding costs will likely increase and new loan originations will slow due to higher interest rates and tightening in credit standards. In our view, the higher operating profits built on NII increases will enable banks with higher flexibility to accumulate higher reserves.”