Banks’ Stability Reaches Highest Levels Since 2014

Italian Banks: A Snapshot of the Current Situation

Lately, Italian banks are doing quite well, boasting a higher than average capital solidity within Europe, profitability levels at their peak since 2014, and coming off a successful 2023 that brought in 32 billion euros in profits, a trend expected to continue in 2024.
However, this positive momentum is not matched by an increase in loans to families and businesses, which are actually decreasing, partly due to the recent rise in interest rates.

The Health of Italian Banks

The strength of Italian banks can be mainly attributed to the analysis of the Common Equity Tier 1 (CET1) ratio.
This ratio represents the relationship between ordinary share capital and risk-weighted assets, indicating the bank’s ability to cover its granted loans.
In 2023, the average CET1 ratio of major Italian banks exceeded 16%, a significant increase compared to less than 12% a decade ago and close to 10% in 2016.
According to ECB regulations, the CET1 ratio should be at least 8%, making this a crucial metric for investors and savers evaluating a bank’s solidity.

Recent Trends and Comparisons

Between 2019 and 2023, the average CET1 ratio of significant Italian banks grew more compared to both the European average and the major economies on the continent.
Italy showed a gain of two percentage points in 2023, while Germany and France increased by about one and a half and one point respectively.
Additionally, Return on Equity (RoE) in Italy reached approximately 15% in 2023, higher than the 10% among ECB-regulated entities.

Key Players and Future Perspectives

In 2024, top Italian banks, such as Cassa Centrale Banca, FinecoBank, Banca Profilo, and Mediolanum, lead with high CET1 ratios, indicating their robustness and lower vulnerability to financial crises.
The Bank of Italy suggests the possibility of using these positive capitalization and profitability conditions to establish “macroprudential reserves” in case of systemic risks.
Despite the current strength, ongoing geopolitical tensions call for continued vigilance.

The recent statement by the ECB indicates a resurgence in bank profitability across the Eurozone, driven by a rapid rise in interest rates.
With inflation under control, there is talk of potential rate cuts in the upcoming weeks.
All eyes are on the ECB meeting on June 6, where a decision on reducing mortgage interest rates is likely to be made, reflecting the changing financial landscape in the region.