Banks, Fitch: Resilient liquidity and funding thanks to stable deposits
(Teleborsa) – The liquidity of five major Italian banks should remain solid despite the current volatile market conditions, thanks mainly to financing structures dominated by customer deposits, which have demonstrated great stability through the various economic cycles. Fitch Rating affirms it in a new report that it takes into consideration Intesa Sanpaolo, Unicredit, Banco BPM, Iccrea Group and BPER Bancaall of which operate as universal banks and have similar funding structures, with customer deposits representing between 60% and 72% of total funding.
L’access to funding varies by geographical area and debt instrument among the five banks, with Intesa and Unicredit being the most active, even in periods of market volatility.
Bond issues like them
Fitch highlights that median customer loans/deposits ratio of banks was 89% at the end of September 2022, well below the four-year average, reflecting a faster increase in deposits than loans in recent years. “There deposit growth has started to slow down in the first half of 2022 and we expect this trend to accelerate in 2023,” the report reads, citing inflation, rising interest rates, the end of Covid safeguards and competition from alternative investment options.
All five banks issued debt, mostly senior preferred bonds, in late 2022 and early 2023, and Fitch expects that “investor appetite for banks will be resilientdespite the economic slowdown. However, issuance costs have inevitably increased due to rising interest rates.
Adequate capitalisation
Furthermore, the banks have so far been unable to limit the pass-through of deposit rates, reflecting their strong pricing power. Intesa and Unicredit said their deposit beta could increase to 30%-40% in 2023, but higher funding costs shouldn’t materially impact profitability, as higher interest rates will also boost revenue, particularly as much part of the loans in Italy are floating rate.
Finally, banks have adequate capitalization for absorb the potential deterioration in asset qualitywhile pursuing capital payouts in line with their plans. The banks had a median Common Equity Tier 1 (CET1) ratio of 14.3% at the end of 2022.