The profitability of Italy’s medium-sized commercial banks is likely to remain weak beyond the pandemic, owing to structural weaknesses in their business models, according to Fitch Ratings.
The rating agency cites several mid-tier Italian lenders — including Südtiroler Volksbank, Banca Popolare di Sondrio, Banco di Desio e della Brianza, BPER Banca and Credito Emiliano — that are hampered by a lack of business diversification at a time when earnings are under pressure from low interest rates and intense competition.
Pre-tax profits at BPER Banca tumbled 46% to $251m last year, according to The Banker Database, while they fell far less sharply to $311m at Credito Emiliano, $194m at Banca Popolare di Sondrio and $39m Banco di Desio e della Brianza. Pre-tax profits at Südtiroler Volksbank rose to $26m in 2020, but only on the back of heavy losses of more than $100m in 2019.
“Many medium-sized Italian commercial banks rely on net interest income (NII) as a main driver of operating revenue, which has been under pressure in recent years due to low interest rates, competition for clients and the limited scope to reduce rates paid to depositors, which are already at or close to zero,” according to Fitch’s analysts.
NII at Banca Popolare di Sondrio and Credito Emiliano stood at around $600m in 2020, according to The Banker Database. Südtiroler Volksbank and Banco di Desio e della Brianza reported NII of $274m and $213m, respectively, whereas at BPER Banca it rose to $1.53bn last year.
Many observers expect consolidation in the Italian sector as banks seek to boost profitability. BPER’s largest shareholder, insurer Unipol Gruppo, recently increased its stake in Banca Popolare di Sondrio to 9%, which could be a first step towards a tie-up between BPER and Sondrio, Fitch notes.
