2014 will be a year of transition for Italian banks. On the one hand, the indicators point to the consolidation of the economic recovery, on the other, there are elements of risk, starting with low inflation. However, growth permitting after the GDP freeze in the first quarter, the Italian banking system will finally regain a positive albeit modest return on capital with a Roe of 1% and around 2,8 billion in profits, thus leaving behind the further estimated loss for 2013 just under 16 billion euro.
This is the Prometeia forecast released during the usual appointment with the Banking Day which outlines the scenario for Italian banks (excluding the part of the business that the groups have abroad) for the three-year period 2014-2016. In 2015, Roe should rise to 3,1% in 2015 and above 4% in 2016, thus confirming modest but improving profitability. Earnings estimates point to $8,5 billion and $12 billion in profits respectively over the next two years. The three-year period should therefore close with approximately 23 billion in profits, returning almost to the level of the 2008-2009-2010 three-year period (27 billion). A not brilliant result (between 2005 and 2007 the profits of the system amounted to a good 61 billion) but which indicates that the banks have overcome the most acute phase of the crisis when they lost, between 2011 and 2013, a good 41,1, XNUMX billion euros. In other words, it is a banking system that stops losing, stabilizes results pending the results of the ECB's asset quality review and stress test. An appointment which, it should be remembered, despite the numerous capital increases initiated by the system, still has uncertain outcomes in the light of the implementation of new models. For this reason, the Prometeia scenario does not incorporate the effects of AQR or stress test simulations.
The progressive strengthening of profits will be supported by the reduction in the cost of risk (83 basis points in 2016 from the 153 expected for 2014) and by a scenario of continuous cost containment (both in terms of distribution networks and personnel reduction), consolidation of revenues from services and recovery of the interest margin. The contribution of interest on securities in 2015-2016 will instead be lower because the banks are selling securities to repay the money of the ECB Ltro.
In terms of credit disbursement, net of the non-performing component, it will be another year of contraction (-0,6%) and will be influenced, explains Prometeia, "by the high risk level of borrowers". In the following two years, forecasts indicate a recovery in disbursements at a contained pace (+2,2% on average). "Credit risk - notes Prometeia - will remain a critical element, resulting in a flow of adjustments to loans that is still high, albeit gradually decreasing: 53 billion euro accumulated over the three-year forecast period)". In 2014, the worsening of credit quality and the need to consolidate coverage levels will lead to a flow of adjustments to around 23 billion (in any case lower than in 2013 marked by the huge write-downs of Unicredit) which should however decrease in 2015 and above all in 2016.
The first small signs of stabilization and improvement arrived with the first quarter. In particular, if one refers only to the results of the 11 listed Italian banking groups, Prometeia notes that the total profit amounted to 1,3 billion against 900 million in the same period of 2013 and that only two operators recorded a loss . “The result – explains Prometeia – was supported by net commissions and the trading result. The flow of loan adjustments in the first three months was marginally reduced compared to that of the corresponding quarter, as were costs (-1,6% on the first quarter of 2013)”.
THE FORECAST FOR THE SYSTEM FOR 2014-2016
In detail, Prometeia forecasts that in the two-year period 2014-2015 direct deposits will further reduce due to the contraction of the bond component and that it will return to moderate growth only in 2016 (+1,5%). "The need to increase stable funding - he says - also to adapt to the liquidity requirements of Basel 3, will favor the recovery of deposits with pre-established duration from 2015". Widening commercial banking margins will still be difficult in the light of intermediation volumes that will remain low and the erosion of unit deposit margins. In 2014 the customer margin will start growing again due to the widening of the banking spread and will support the recovery of the interest margin (+1,9%) and should continue to improve in the following two years. The intermediation margin will expand again in 2015 (+1,2% on average in the next two years) while the reduction in operating costs will lead the cost-income reduction to 56,9% in 2016.
THE MACRO SCENARIO AND THE SURPRISE OF THE GDP
To construct its forecasts, Prometeia is based on a macroeconomic scenario which presents some good news compared to six months ago. In particular, the data show that the recovery has consolidated and the positive effects are also expected in Italy. However, the forecasts incorporate Italian growth of 0,7% at the end of the year, processed before the GDP figure for the first quarter, a surprisingly negative result of 0,1%. Growth in 2014 will therefore undergo a revision which presents downside risks to this scenario. However, for Prometeia there should be a modest impact, which could reduce the forecast of 2,8 billion of profit, however confirming the transition phase of 2014. Among the positive news, Prometeia indicates the strong recovery of the financial markets which contributed to the reduction of financing costs for banks. In the light of the still very expansive monetary policy in Europe, the forecast indicates still very low interbank rates and a Btp-bund spread at the end of the three-year period of around 130 basis points. Among the risk factors, there is certainly the low level of inflation, the strength of the euro and higher long-term rates due to the spillover effect from US rates.
