A reduction of the bad loans stock within the Italian banks, but also a better profitability and an increased property ratio. Abi estimates for the next three years an improvement in the overall quality of banks’ assets with a yearly average reduction of 15% of the net bad loans, together with a reduction of 40% of the ratio between net bad loans and investments within three years. The forecasts by the Abi Research department, carried out in collaboration with the main banks operating in Italy, expect also an increase of the loans with over 140 billion more between the end of 2016 and the end of 2019.
Bad loans dropping by 15% per year
The bad loans stock should fall by 30 billion in the mentioned period (equal to 35% of the stock at the end of 2016). Three-quarters of the bad loans are supposed to belong to companies. In this way, the ratio between net bad loans and total investments should maintain the same trend and continue to reduce continuously and considerably in the next three years: by the end of 2019, this ratio is expected to set at 2.7%, nearly two points less compared to 2016. A potential acceleration in the disposal process of non performing loans might accentuate this trend, determining a further reduction of the bad loans/investments ratio
The stabilization expected from the credit risk reduction process, driven by a significant improvement of the credit quality of the companies, should induce a faster growth of the investments: in the next three years, the stock of credit granted should increase of about 140 billion euro, with an average yearly variation of 2.6%. Considering only the performing loans, net of the outflow of the bad loans, the average growth rate of the investments should be equal to 4%.
Growing capitalization and profitability recovery
Abi sees a strengthening in the property indexes. After the reduction registered in 2016, they will resume their growth: by the end of 2019, the Cetl ratio will set at 13%, 1.5 percentage points more compared to the end of 2016.
The start of a new positive trend for the interest rates should limit the depressive effects on the interest margin which, in this way, can take advantage of the growth, even though contained, of the brokering activity. The total return should grow according to the average annual rate of 3.6%.
If compared to 2016, the totality of the operational costs should reduce for each year in consideration, plus minor charges accumulated, for a reduction of over 5 billion euro throughout the entire period (over 10% less). A good part of this reduction should be due to the lack of extraordinary charges related to the termination interventions on companies as well as the effects of early terminations of employments.
By the end of the period in consideration, the cost/income ratio, showing the efficiency of management, should be equal to 58%.
The forecast concerning the adjustments and provisions flows represent the true force driving the improvement in management profitability. If in 2016 the provisions took assets for almost 36 billion euro (equal to 170% of the operating income), in the three years in consideration this outflow should decrease and reach an average yearly value of 19 billion euro, equal to 65% of the average operating income for the 2017-2019 period.
“In the overall, the income volume will recover considerably from the low levels of 2016, and a strict control on costs and a significant improvement in the cost of risk will permit a good recovery of the profitability. The Roe, namely the net equity, is expected to grow constantly throughout the 3-year period, and by the end it will set around 2.8%, increasing by over 7 percentage points compared to 2016, even though still below the before crisis levels.
Gdp +1.3% this year and steady growth in the next two years
The Abi Research Department estimates for this year an additional growth of the national economy. The growth of the Italian Gdp is assessed for 1.3% and it will keep this level also for the next two years. The scenario forecasted by Abi sees the budget operations following a path coherent to this cycle: by the end of 2019, the debt/Gdp ratio will be decreased by nearly 5 percentage points compared to the previous year.
Translator: Cristina Ambrosi