Italian Banks: Solid Q1 2024 Suggests that Downside Risks Are Still Under Control, but Uncertainty Remains

The commentary analyses the Q1 2024 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 billion in Q1 2024, up 25% YOY or up 22% YOY excluding a one-off positive item at BPER in Q1 2024. Aggregate net profit was down 4% QOQ or up 3% QOQ when excluding one-off items at BPER and MPS in Q1 2024 and Q4 2023.
-- Strong net interest income (NII), coupled with a rebound in net fees and sound cost management has supported operating profits. NII will likely remain robust in 2024 as average commercial spreads are expected to remain higher than in 2023.
-- Loan Loss Provisions (LLPs) were down YOY and QOQ in Q1 2024, as well as the cost of risk. Asset quality metrics have remained broadly stable despite some higher new NPE inflows and sluggish loan growth.
-- The normalisation of the sector’s liquidity is ongoing, funding structures remain sound, and capital buffers are large enough to absorb the recent introduction of a Systemic Risk Buffer (SyRB).

“The solid performance in Q1 2024 suggests that downside risks appear under control, however uncertainty remains given the expected modest GDP growth in the country and the level of interest rates which will remain high for some time, even when accounting for the expected rate cuts later in the year,” said Andrea Costanzo, Vice President from the Morningstar DBRS European Financial Institution Ratings team. “We expect banks with a more diversified revenue mix to continue to do well in the likely lower interest rate environment in the future”.