Very low interest rates and profitability, impaired loans to be disposed of through sales and write-downs, increasingly stringent restrictions on capital strengthening, eroded in the meantime by losses: these are the difficulties that Italian banks have had to face in a decade. However, 2021 and the next few years can represent a turning point.
Since the beginning of the year, banks have excelled in Piazza Affari: Banco BPM is the best YTD share on the Ftse Mib with + 61%; in the top ten there are also Unicredit which marks approximately + 37%, Bper + 34% and Mediobanca almost + 32%.
The reasons for betting on banks
Five reasons to bet on Italian banks second Piergiacomo Braganti, Director, Research of WisdomTree. First of all, because interest rates should start to rise again – in part they are doing so – and with them the interest margin, or the margin deriving from banking activity. The gradual rise in lending rates and the defense, for now easy, of funding at no cost, should be reasonably possible.
Secondly, continues Braganti, an increase is expected in revenues from services, typically remunerated on a commission basis, and mainly from payment services, collection and collection, securities brokerage, securities trading, asset management and social security forms. Third, analysts predict a drop in operating costs, as a result of slimming care on branch networks, staff (in number, average age and salary), and investments in fintech, which has made customers increasingly independent with the “Home banking”. Fourth, a decline in provisions and adjustments on loans is expected, thanks to the “budget cleansing” work in recent years, which drastically reduced non-performing loans in the assets of banks and thanks also to greater selectivity in new disbursements . Finally, for some listed banks, a lighter level of taxation is imaginable on the profits of the next few years, thanks to the “fiscal recovery” of the losses suffered in previous years.
Also, at the end of 2021 banks will be able to pay dividends again, exceeding the limits currently in force until 30 September 2021. It is also worth mentioning that the Italian Government and the European Commission are pushing for greater concentration in the sector and the Central Bank will continue to guarantee money in abundance and at no or negative cost to the system credit.
In a month, the ECB decision on the removal of limitations on dividends
And precisely on the dividend front, on 23 July the ECB has on its agenda the decision on the possible removal of restrictions on the distribution of dividends and purchases of treasury shares by banks. Andrea Enria, president of the ECB’s Banking Supervisory Board, defended the stop decided for the distribution of dividends but specified that this is an intervention for exceptional cases, such as the pandemic. “I disagree with making it a normal tool in the SSM toolbox,” continued Enria, who also urged banks to focus on sustainable business. “The pandemic has sounded the alarm for those banks that until then had justified low profitability by blaming regulation and low interest rates, and which had been waiting for a relaxation of the rules or a rise in rates. These banks must understand that it is up to them to find ways to make profits: investing more in digital, setting up a consolidation strategy and sustainable business models ”. And the ECB intends to do its part to push banks to move in that direction.