The weight of NPLs continues to fall on the balance sheets of Italian banks, but the ECB's ultra-expansive monetary policy has lowered the yield curve and now a new formula is needed to rekindle the return on capital.
“The stock of bad loans is shrinking with increasing intensity and new bad loans have returned to their pre-crisis level”, Economy Minister Pier Carlo Padoan said in Rome on Monday, speaking at the Italian Banking Conference 2017 organized by the Luiss University.
“The path that Italian banks are pursuing is the right one – he confirmed Ignazio Angeloni, member of the supervisory board of the ECB – We have recorded a clear improvement in capital solidity, but there is still a long way to go. At system level, gross non-performing loans in Italy went from 15 to 12%, against a European average of 6%, while net ones fell from 8 to 6%, against 3% in Europe”.
This is why Angeloni urged Italian banks not to "sit on their laurels" and to "pay close attention to governance", from which "many of the problems" of credit institutions originate. As for European rules, he added: "I hope that Basel 3 will be completed by the end of the year or at the beginning of next and I believe that there will be stability in the regulation of the banking industry".
But there are other issues to be addressed as well. Second Joseph Chestnut, CEO of Banco Bpm, the banks are competing too much on rates and this “makes the economic accounts heavier. With negative rates there is a theme of loans that we are unable to do by better pricing the risk. Before the crisis we gave everyone credit: today the fork has become very low, the lowest ever. We need to start doing something in these areas too”.
Not only. "Banks also have to deal with a new form of competition that derives from technological evolution and with respect to which asymmetries are developing - he underlined during the same conference at the Luiss Gian Maria Gros-Pietro, president of the Board of Directors – The new operators who enter to carry out banking operations are outside the monitoring system to which the banks have been subjected”. Gros-Pietro's reference is to crypto-currencies and, "to a lesser extent", also to social networks, which "register large flows and which are not subject to the same surveillance rules to which banks are rightly subjected", which with the crisis saw their interest margin fall from 1.400 to 600 billion. Less than half.
Victor Massiah, CEO of Ubi, “it is useful for the regulation to stabilize, so that the indispensable impact analysis can also be carried out. The sector in Italy underwent a living stress test and the overall contribution of the state was lower than any other country, excluding Finland”. Today, according to Massiah, board members of listed banks are forced to devote 80% of their time to regulation and compliance.
Still on profitability, Gros-Pietro underlined that “the low rates have also generated opportunities: we as a bank have defended our interest margin, we have reduced costs but above all we have developed managed savings. We need these financial flows”.
He doesn't quite agree Giampiero Maioli, head of Credit Agricole in Italy, who points out that "an excessive concentration on the margin from services and commissions could lead to difficulties in supporting business investments and could decrease the banks' interest in making loans".
Alexander Penati, president of Quaestio – the company that manages the Atlante Fund2, specialized in bank non-performing loans – goes even further, arguing that we must not make the mistake "of considering the future model of the bank as something between a supermarket and Amazon, because the main function of the bank is to make credit. The level of non-performing loans is considered as an exogenous factor, a consequence of the great recession, but in reality it is mainly the result of errors in the disbursement of credit”.
Another aspect to consider “is that of banking productivity – he said Andrea Munari, CEO of Bnl – we are still behind the corporate world, which has drastically higher productivity levels. We have to deal with this world. It will also be necessary to dialogue with the union to ensure that the personnel are able to face this challenge which involves all of us".
