Banks: Abi disseminates the 4th Report on European Banking Markets

The Report analyzes the dynamics, between 2006 and 2017, of the data of the consolidated financial statements relating to a sample of 120 banking groups - equal to approximately 75% of the European market -, which are observed in terms of assets, income, productivity and efficiency.

The most recent data available, related to the 2017 exercise, indicate a clear recovery for the group of European banking groups observed, both compared to the 2016 and, more in general, to the years of the crisis. In particular, in aggregate terms, the following trends are observed in comparison with the 2016 (Changes calculated on reclassified balance sheet data, where necessary, to take account of mergers and acquisitions, neutralize the effects of NPL securitization transactions and guarantee the exchange rate parities on assets in foreign currency):

  • the stock of loans granted to customers is up by 1,7%;
  • the amount of impaired loans (NPL) is reduced by around 11%;
  • the equity index, Common Equity Tier 1 (CET1) ratio, is around 14,5%, up about 1 percentage point;
  • the economic results accelerated significantly, with an increase in operating income, measured net of extraordinary cost and revenue items, around 36%;
  • the average return on invested capital (ROE), net of extraordinary items, is equal to 6,7%, higher than 1,7 points compared to one year before.

Also as regards specifically the Italian banking groups, the data confirm that the recovery process towards the pre-crisis situation is well under way. This process is favored by the recovery of the national economic context, by the reduction of risks and the complexity of the context within which the Italian groups operate.

Overall, even for Italian banks 2017 data are the best since the start of the crisis, with the ROE, measured net of extraordinary income components, which is around 4%, strongly recovering after the losses of 2016 .

These results are the result, on the one hand, of the efforts to improve the efficiency of the structures and reduce administrative costs, which more than offset the decline in revenues and, on the other hand, the conspicuous decline in loan adjustments, which in turn was the reduction in the inflow of new impaired loans and the high level of hedging on NPL.

In addition to the accounts of the banking groups operating in Italy, there is also a noticeable improvement in asset quality, with the gross NPL ratio which, also taking into account the sale of bad loans announced and being completed, fell by around 3,5 percentage points in the year, ranking, on an aggregate basis, at 13,6% at the end of 2017 (in net terms the index is lower than 7%). It should also be noted that for some banks the index is already aligned with the European average values. This trend is favored by the growth in volumes of impaired loans that have come out of financial statements (by sale or internal management) and by the development of loans to customers, up by around 2% in 2017. The data illustrate the positive results, higher than expected, that the Italian banking sector has been able to achieve. This, even taking into account the comforting forecasts on national economic growth in the near future, induces optimism and realistically suggests that the issue of NPLs is now starting to normalize and does not represent a risk factor for Italian banks.

Progress on credit quality and good forecasts on national economic growth allow banks operating in Italy to return to look to the future with optimism, focusing on the recovery of profitability and competitive capacity, which primarily means continuing to act to effectively grasp the cost and revenue opportunities also related to technology developments. This is also necessary in order to counteract the potential negative effects on the economy and on investments that could derive from the introduction of further new supervisory rules.

In an in-depth report, the importance of a correct assessment of the causal links between investments and impaired loans is clarified. The results of the analysis seem to show that the relationship between investments, loans and impaired loans moves, in fact, from the first to the second and not vice versa. The analysis therefore points out that the priority requirement, in order to stabilize the recovery of the cycle, should not be concentrated only on the reduction of NPLs but also on the introduction of measures to further stimulate the growth of private investments.

Banks: Abi disseminates the 4th Report on European Banking Markets