In recent weeks, the banking sector has been the protagonist of the quarterly reporting season. A sector that has seen a real profit boom in 2023, with generous dividends and buyback operations. A sector that has benefited from the numerous rate increases by the European Central Bank (ECB) that have taken place over the past year. The scenario could soon change, with the ECB expected to begin the rate cutting cycle (probably starting from the summer). What could this mean for the big banks on Piazza Affari? In a recent report signed by Dbrs Morningstar, “the solid results of 2023 help banks to orient themselves in a context that promises to be less favorable in 2024”.
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The news of the last few weeks has seen the banks of Piazza Affari in the foreground with the publication of the quarterly and full 2023 numbers. The governor of the Bank of Italy, Fabio Panetta, also spoke about it during his first speech at the Axiom Forex.
A truly positive series of numbers, with the institutions also announcing important shareholder remuneration policies in the form of dividends and buyback operations. Once the announcements are over, Dbrs Morningstar experts analyze the sector and take stock in a report entitled “Italian Banks: Strong 2023 Results Help Banks Navigate the Likely Less Benign Environment in 2024”.
After the profit boom…
The analysis starts from the recent results for 2023 of the major Italian banks (Intesa Sanpaolo, UniCredit, Banco Bpm, Bper Banca and Banca Mps) which recorded an aggregate net profit of 6.3 billion euros in the fourth quarter of 2023, up 62% on an annual basis.
Looking at the accounts for the full year 2023, aggregate net profit was €22.1 billion, up 73% year-on-year or 57% year-on-year excluding one-off items. The 2023 results, the rating agency’s experts explain, were supported by higher revenues, good cost control and lower provisions for loan losses (LLP) and led to a return on equity (ROE) of 14. 5% compared to 7.7% in 2022.
Operating profits benefited from higher net interest margin (NII), resilient net fees and cost control. According to Dbrs Morningstar, the NII has probably peaked and a less favorable trend is generally expected in the coming quarters. “However, this will not necessarily translate into a decrease in NII in 2024 as average margins are expected to remain above historical levels and banks are protecting themselves in an expected lower rate environment,” the report reads.
“Strong 2023 results led to sustained organic capital generation despite more generous distributions to shareholders via dividends and buybacks at some banks – underlines the rating agency. – This, combined with stronger risk profiles, places Italian banks in a better position to face a likely less favorable environment in 2024. With the liquidity of the sector which has decreased slightly but which remains solid.”
“European banks are better capitalized and more resilient than at the start of the Banking Union ten years ago. Ma there is no room for complacency. Structural changes in the real economy, new risks that are emerging, digitalisation and increased competition can test banks’ business models.” To underline it Claudia Buch in her first speech as president of the ECB’s Banking Supervisory Board speaking yesterday at the “House of the Euro” in Brussels.
“Lately, Bank profits benefited from higher interest rates. This provides the opportunity for banks to increase their resilience, in terms of creating capital buffers and resilient information technology infrastructures”urges Buch who reminds us that we live in uncertain times in a scenario in which macroeconomic and geopolitical risks have increased.
“The first trend is the increase in macroeconomic and geopolitical risks, including risks related to climate and the environment – declares Buch who took over from Andrea Enria at the beginning of 2024 -. Interest rates and energy prices have already increased, growth projections have been revised downwards, climate-related risks are becoming increasingly visible and the number of cyber attacks has increased.”