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Solid and healthy banks, a picture that should not change for many months even if profit taking will increase especially after the very positive performances and in a more challenging scenario due to the drop in rates. Since the beginning of the year, banks remain among the sectors that have recorded the best performances. The results of the second quarter were positive and visibility for 2024 is high. It is thanks to them that Piazza Affari has earned the pink jersey in Europe, given the strong weight on the index. “Revenues have benefited from a better rate scenario than forecasts at the beginning of the year and positive signals are arriving on the commission front, thanks to the good performance of the markets, which has increased assets under management – underlines Alberto Villa, head of equity research at Intermonte -. Furthermore, at the moment the provisions for credit risks are at historic lows and the quality of credit has improved in structural terms, thanks to portfolio cleaning policies”.
In perspective
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With a macroeconomic scenario marked by modest economic growth, there should not be a significant deterioration in the cost of credit risk. However, the picture presents some uncertainties that Filippo Alloatti, head of the finance and credit division of Federated Hermes, sums up well: «The recent quarterly reports with generous checks paid to shareholders (between share buybacks and rich dividends, ed.) certify the good health of Italian banks. A sort of battle continues between the various managements in updating increasingly upwards the estimates for the intermediation margin and the group net result expected for 2024. But at these record levels of profits, growth inevitably slows down. Either because of the change in Frankfurt’s prudent monetary policy, or because of the lack of appetite in the demand for credit on the business and family sides. The sector remains cyclical. It must be considered that the Italian deficit must be covered and the rich accounts of the banks could tempt the pragmatic Minister Giorgetti».
Revenues down
Alberto Villa also agrees on a possible drop in revenues, but he also underlines the banks’ ability to compensate for this phenomenon with a greater contribution from commissions on managed savings and insurance products, and with the crystallization of high coupon flows for the next few years. The drop in bank profits will happen: Intermonte estimates speak of a -5% in 2025 compared to the peak expected this year, but the generation of profits and distributable capital remains attractive. “Our expectations are also positive in 2024 with distributions of 21 billion – adds Villa – a crucial element for the sector, given that the expected average dividend yield is in the 9% area, increasingly attractive with the expected drop in rates. However, we cannot expect the sector to continue to be the driving force behind the Italian stock market. In the last two years, banks have closed the valuation gap compared to European ones and today they trade at higher multiples. However, this should not be surprising given the solidity of the capital and the higher level of resilience, also thanks to lower exposure to risky business segments”.
Where to invest
Looking ahead to 2025, the focus is on savings products and banks that focus on product factories. “Intesa, which has these factories in-house, and UniCredit, which is renegotiating distribution agreements, are well placed,” Alloatti details. “Monte dei Paschi remains interesting, given the speculative appeal linked to M&A, as the end-of-year deadline for re-privatization approaches.” Villa also prefers banks that are more exposed to the offer of financial services and has positive expectations for stocks that have asset management in their DNA, such as Intesa, Credem, Banca Mediolanum, Banca Generali, and Mediobanca.
Top 10 banks in Italy
Solid and Healthy Banks in Italy: A Comprehensive Overview
As of 2023, Italy is home to a robust banking system, with the top 5 popular banks being Intesa Sanpaolo, UniCredit, Poste Italiane, BNL, Banco Nazionale del Lavoro, and ING Italia [[1]]. The country has a total of 439 banks and credit institutions, which is a significant decrease from the 740 that were operating in 2011 [[2]].
The Italian banking sector has been performing exceptionally well since the beginning of 2023, with positive results in the second quarter and high visibility for 2024. The sector’s revenues have benefited from a better rate scenario than forecasts, and positive signals are arriving on the commission front, thanks to the good performance of the markets, which has increased assets under management.
In Perspective
With a macroeconomic scenario marked by modest economic growth, the cost of credit risk is expected to remain low. However, there are some uncertainties in the picture, such as the potential impact of Frankfurt’s prudent monetary policy and the lack of appetite in the demand for credit on the business and family sides. Despite these challenges, the sector remains cyclical, and banks are expected to continue generating profits and distributable capital.
Revenues Down
Experts predict a possible drop in revenues, but banks are expected to compensate for this phenomenon with a greater contribution from commissions on managed savings and insurance products, and with the crystallization of high coupon flows for the next few years. Intermonte estimates suggest a -5% drop in revenues in 2025 compared to the peak expected this year, but the generation of profits and distributable capital remains attractive.
Where to Invest
Looking ahead to 2025, the focus is on savings products and banks that focus on product factories. Intesa Sanpaolo, which has these factories in-house, and UniCredit, which is renegotiating distribution agreements, are well-placed to benefit from this trend. Monte dei Paschi remains interesting, given the speculative appeal linked to M&A.
Italian Bank Holidays
It’s essential to note that Italian banks observe several holidays throughout the year, including New Year’s Day, Epiphany, Easter Monday, and Italy Liberation Day, among others [[3]]. These holidays may impact banking operations and services.
the Italian banking sector is expected to remain solid and healthy in the coming months, driven by positive performances and a favorable macroeconomic scenario. While there are some uncertainties in the picture, banks are expected to continue generating profits and distributable capital, making them an attractive investment opportunity for those looking to invest in the sector.
Solid and Healthy Banks: A Picture That Should Not Change for Many Months
Italian banks have been recording impressive performances since the beginning of the year, with the weighted average return on average common equity (ROACE) expected to hit roughly 14% for 2024, outperforming European rivals [[1]]. The second-quarter results have been positive, and visibility for 2024 is high. This is thanks to a better-than-expected rate scenario and positive signals on the commission front, resulting from the good performance of the markets, which has increased assets under management [[2]].
In Perspective
The Italian banking sector has been a driving force behind the country’s stock market, earning Piazza Affari the pink jersey in Europe. The picture presents some uncertainties, however, with a macroeconomic scenario marked by modest economic growth. Despite this, there should not be a significant deterioration in the cost of credit risk. The sector remains cyclical, and growth inevitably slows down at these record levels of profits.
Revenues Down
Despite the positive outlook, there are expectations of a drop in revenues in 2025, with Intermonte estimating a -5% decline compared to the peak expected this year. However, banks are expected to compensate for this phenomenon with a greater contribution from commissions on managed savings and insurance products, and with the crystallization of high coupon flows for the next few years [[3]]. The generation of profits and distributable capital remains attractive, with expected distributions of 21 billion in 2024.
Where to Invest
Italian banks have closed the valuation gap compared to European ones and today trade at higher multiples. This should not be surprising given the solidity of the capital and the higher level of resilience, also thanks to lower exposure to risky business segments. With an expected average dividend yield of 9%, the sector remains attractive for investors.
Top 10 Banks in Italy
The top 10 banks in Italy have been performing well, with major banks such as Unicredit, Intesa Sanpaolo, and Banco BPM leading the pack. These banks have been benefiting from a better rate scenario than forecasts at the beginning of the year and positive signals on the commission front.
despite some uncertainties, the Italian banking sector is expected to remain solid and healthy for many months, driven by a better-than-expected rate scenario, positive signals on the commission front, and a strong capital position. Investors looking for attractive dividend yields and resilience should consider investing in Italian banks.
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