Italian Banks Under Scrutiny Following Latest Quarterly Reports: Here’s How to Invest in the Sector

Italian Banking Sector Shows Strong Financial Growth in Q1 2024

In the first quarter of 2024, the Italian banking sector demonstrated robust financial growth, with the seven major banks collectively generating profits of 6.3 billion euros.
This represents a significant increase of 25.5% compared to the 5 billion euros in the corresponding period of 2023.
Let’s delve into the quarterly results and ETFs that could benefit from this growth.

Interest Margin Soars for Intesa and Unicredit

The interest margin, which represents the difference between the active interest received on loans and the passive interest paid on deposits, showed an absolute increase of 1.4 billion euros on an annual basis.
Of this amount, Intesa Sanpaolo and Unicredit significantly contributed with 680 million euros and 280 million euros respectively.
This increase is crucial as the interest margin is a fundamental metric of bank profitability, indicative of an institution’s ability to generate profits from its core business in a competitive market environment.

The performance of other banks in terms of the interest margin also showed improvements, with Banca Popolare di Sondrio and Credem recording the highest annual progress, with increases of 39% and 22% respectively.
These data not only reflect effective resource management but also a strategic response to market dynamics.

Strategic Focus on Fees and Commissions

Amid forecasts of a possible interest rate cut by the ECB starting from the summer, the emphasis is on the importance of banking strategies focused not only on interest but also on fees.
In this regard, Intesa Sanpaolo has taken the initiative by creating a task force dedicated to “fees and commissions,” restructuring the wealth management division to drive growth in this segment, demonstrating a proactive approach in diversifying its income sources beyond traditional interests.

This strengthening of the interest margin in the context of an interest rate hike by the ECB underlines the effectiveness of the management strategies adopted by the main Italian banks, as well as their direct impact on their financial health and market competitiveness.

Performance of Major Italian Banks in Q1 2024

The first quarter of 2024 was particularly positive for the major Italian banks.
Unicredit led the group with a quarterly profit of 2.56 billion euros, marking a 24% growth compared to the same period the previous year.
This performance was closely followed by Intesa Sanpaolo, which reported a positive result of 2.3 billion euros, an 18% increase from Q1 2023.
Both banks benefited from a solid interest margin and effective cost management.

Smaller banks also showed equally impressive results.
Bper saw a 57% increase in profits, reaching 457 million euros, while Banco BPM reached 370 million euros (+40%).
Monte dei Paschi di Siena totaled 333 million euros (+41%), Credem reached 161 million euros (+19%), and Popolare di Sondrio reported a profit of 145 million euros (+54%).
The increase in interest margins and fees strengthened these results, with banks demonstrating a remarkable ability to capitalize on opportunities offered by rising interest rates and moderate economic growth.

Top 3 ETFs in the Financial Sector Over the Last Year

Financial sector ETFs have gained significant attention over the past year.
Among these, the Xtrackers MSCI World Financials UCITS ETF 1C stands out for its broad coverage of the MSCI World Financials index, which includes a wide range of financial companies from developed markets.
With a low annual total expense ratio (TER) of only 0.25%, this ETF not only offers a competitive management cost but is also the largest of its kind, with assets under management amounting to 567 million euros.
Launched on March 4, 2016, domiciled in Ireland, the ETF adopts a total physical replication strategy, purchasing all index components, and reinvesting accumulated dividends.

Another key player in this field is the SPDR MSCI World Financials UCITS ETF, which tracks the same index.
Although it has a slightly higher TER of 0.30%, this fund also commits to faithfully replicate the index by purchasing all its components.
With assets under management of 286 million euros, the ETF, which has been operating since April 29, 2016, is also domiciled in Ireland.

On the sustainability front, the Amundi S&P Global Financials ESG UCITS ETF DR EUR (A) represents an innovative offering in the market.
This ETF tracks the S&P Developed Ex-Korea LargeMidCap Sustainability Enhanced Financials index, which not only reflects the financial sector but does so through an ESG lens, selecting stocks based on environmental, social, and governance criteria.
With a TER of only 0.18%, it is the cheapest among ETFs tracking this specific index, managing assets of 420 million euros.
Launched on September 20, 2022, it has shown a remarkable commitment to sustainability, with a physical replication strategy and dividend reinvestment.

Disclaimer: The information and considerations contained in this article should not be used as the sole basis on which to make investment decisions.
The reader maintains full freedom in their investment choices and full responsibility for their implementation, as only they know their risk tolerance and time horizon.
The information in the article is provided for informational purposes only, and its disclosure does not constitute an offer or solicitation for public savings.