ABI disseminates the XOUMX-2018 AFO Forecast Report

Despite an international downward revision of growth estimates, the Italian economy will grow by 1,3% per year over the three-year period 2018-2020. The reduction trend in impaired loans was strengthened: non-performing loans fell further by more than 40% between the end of 2017 and 2020 and NPL ratio, which returned to pre-determined levels. Rising credit to residents: + 2,4% on average per year. The highest quality capital ratio (CET1) at the historical maximum: 14,9% at the end of 2020. Recovery in profitability, driven by risk reduction and management efficiency while the revenue contribution remains modest.

The previsional scenario disseminated by the ABI Studies Office, built as usual with the offices of the main banks operating in Italy, confirms the continuation of the recovery trend of our economy.

The rate of variation of the Italian gross domestic product, albeit revised slightly downwards compared to that forecast in December - due to the uncertainties connected with the persistence of international geopolitical tensions and the possible extension of protectionist policies on international trade - would in fact remain positive in each of the three years considered in the Report.

In detail, in the baseline scenario, the Italian economy is expected to continue to grow at levels that should be around + 1,3% average per year over the three-year period 2018-2020.

With regard to banks operating in Italy, the forecasts indicate, on the one hand, a significant consolidation of the trend to improve asset quality, taking into account both the reduction in the inflows of new impaired loans and the recent trends in disposal of the NPLs, on the other hand they recorded a positive change in the volumes of credit, although less pronounced compared to the forecasts of last December.

In more detail, in the next three years it is expected that the stock of non-performing loans, both gross and net of adjustments, will be reduced by about 40% compared to the values ​​at the end of last year. The reduction should be particularly marked this year, also due to the expectation of large cessions of bad debts, estimated at around EUR 50 billion. In the following two years, the volume of non-performing securitization transactions should be reduced, with an average annual value of around 25 billion. The decline in non-performing loans would be widespread among all categories of debtors, but would be particularly intense for companies, for which they would reduce by 46% over the three-year period.

The NPL ratio, equal to 14,5% gross of adjustments at the end of 2017, should continue to fall rapidly, reaching values ​​of just over 6% at the end of the period. This improvement would be widespread among all banking groups and independent banks.

The reduction of risk would be accompanied by a strengthening of loan dynamics. The credit to residents, increasing for 1,7% in 2017, should increase at an average annual rate of 2,4% in the three-year period. In the sectorial detail, there was a noticeable recovery in the trend of loans to companies, whose annual rate of change would rise from the essentially nil values ​​of the 2017 at an average annual growth rate close to 2,5% in the three-year period. The growth of credit to households should instead consolidate the progress already made during the 2017, placing itself at the end of the period on growth rates of 3,2%.

The capital ratios would tend to grow further: the capital of best quality should increase from 13,8% at the end of 2017 to 14,9% at the end of 2020, the new highest level for Italian banks.

Bank profitability should continue the recovery process initiated in the 2017. The still weak trend in revenues should, in fact, be more than offset by the significant improvement in operating efficiency and the significant reduction in the cost of risk. In particular, total revenues should increase in the three-year forecast period at an average annual rate of 1,6%, while total operating costs and adjustments should decrease respectively by 2,5% and 10% per year.

In the three-year period, banks would generate net profits of around 10 billion euros per year, generating a return on invested capital (ROE), which will increase over the three-year forecast period. At the end of the period the ROE would be around 5%, better result from the 2007 even if still lower than the average level recorded before the crisis.

ABI disseminates the XOUMX-2018 AFO Forecast Report

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