Italian Banks: Strong 2023 Results Help Banks Navigate the Likely Less Benign Environment in 2024

The commentary analyses the 2023 results for the five major Italian banks: Intesa Sanpaolo, UniCredit, Banco BPM, BPER Banca, and Banca MPS.

Summary highlights from the commentary include:

-- Italian banks reported an aggregate net profit of EUR 6.3 billion in Q4 2023, up 62% YOY or up 38% YOY excluding a net release of legal provisions and a positive tax impact at MPS and restructuring costs at BPER in Q4 2023, as well as provisions for Russia, and badwill adjustments from BPER-Carige tie-up in Q4 2022. For FY 2023, aggregate net profit was around EUR 22.1 billion, up 73% YOY or up 57% YOY excluding one-off items.
-- Operating profits benefited from higher net interest income (NII), resilient net fees, and cost control. We expect a less favourable trend for NII in the coming quarters, however this will not necessarily translate into a decrease in NII in 2024.
-- Loan Loss Provisions (LLPs) were down YOY in Q4 2023 and in FY 2023, even when excluding LLPs for Russia in 2022. Cost of risk is set to increase albeit to lower than historical levels. Asset quality has improved in 2023 despite higher interest rates and slowing economy which, in turn, have triggered a contraction in loans.
-- The sector’s liquidity has reduced somewhat but remains sound.

“The strong 2023 results have led to sustained organic capital generation despite more generous distributions to shareholders via dividends and also through share buybacks at some banks,” said Andrea Costanzo, Vice President from the Morningstar DBRS European Financial Institutions team. “This, coupled with stronger risk profiles, places Italian banks in a better position to navigate a likely less benign environment in 2024”.