Big Italian banks, profits tripled in the first quarter
The large Italian banks (Intesa Sanpaolo, UniCredit, BPM Bank, BPER e Banca MPS) have registered a aggregate net profit of 4.8 billion euros in first quarter 2023about three times higher than in Q1 2022, or up 51% year over year excluding provisions for Russia in Q1 2022, according to a DBRS Morningstar report. “Q1 2023 results benefited from higher revenues, cost controls and lower credit costs,” said Andrea Costanzo, Vice President of the DBRS Morningstar Global Financial Institutions team.
In the first quarter of 2023, i total revenue increased 16% year over year, led by a major NII (increased 56% year over year and 3% quarterly) partly offset by lower net commissions and other proceeds. Total revenues also increased 3% quarter-over-quarter (QOQ). THE core revenue (NII and net fees) increased 26% year over year in the first quarter of 2023 and 4% year over year.
“After the recent sharp increases, we expect the NII to stabilize gradually in the coming quarters, reflecting our view that pressure on borrowing costs will likely increase and that new lending will slow due to higher interest rates and tightening credit standards – added Costanzo – In our view, the higher operating profits built on NII increases will allow banks with more flexibility to build up higher reserves.
Watch out for operating costs
I operating costs they increased by 1% year-over-year in the first quarter of 2023, but decreased by 14% quarter-on-quarter, reflecting the benefits from continued cost-optimization measures offsetting the negative impact due to high inflation. The average cost/income it hovered around 47% in the quarter, down more than 8 pp compared to Q1 2022.
In the first quarter of 2023, the provisions for loan losses decreased by 72% year-on-year as the first quarter of 2022 was impacted by large provisions for banks’ direct exposures to Russia and Ukrainebut also by stronger risk profiles and limited new NPL inflows.
The cost of risk falls below pre-Covid levels
Il cost of risk Average annualized (CoR) was 39 basis points in the first quarter of 2023, below 2019-2022 levels. Banks expect a slight increase in CoR in 2023 to an average level of around 40-50 basis points, expecting a higher deterioration in asset quality during the year.
The formation of new ones Non-Performing Exposure (NPE) it increased slightly in the first quarter of 2023, but remained limited with an average default rate of less than 1%. As a result, the aggregate stock of gross NPEs had increased by 1% on a quarterly basis by the end of March 2023, but had decreased by 59% since the end of 2019, driven by disposals and organic liquidation. Nonetheless, the average ratio of gross impaired loans it was 3.3% at the end of March 2023 and a stable QOQ as higher NPL inflows were offset by increased lending, albeit at a slower pace.
Il average CET1 coefficientfully loaded, was 14.3% at the end of March 2023, around 540 basis points above regulatory minimums despite more aggressive distributions to shareholders through dividends and share buybacks by some banks.
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