Fitch and Moody’s do not see disasters for Italian banks after the melonade on extra margins
Critics of the government measure but not catastrophic on the forecasts for Italian banks: this is the opinion of the rating agencies after the government's move on the so-called extra margins of Intesa Sanpaolo, Unicredit, Bper Banca, Banco Bpm and others
Two-sided judgment for the rating agencies Fitch and Moody's after the government's move against the credit institutions : criticism of the tax, but not catastrophic on the forecasts for Italian banks. Here are all the details.
WHAT MOODY'S SAYS ABOUT THE TAX ON BANKS' EXTRAMARGINS
The tax on bank extra profits contained in the government's Omnibus decree law is "credit negative" for the sector. This is what Moody's experts say in a report.
According to the agency's proforma calculations for a select group of banks that accounted for more than 60% of the Italian banking system's net interest income at the end of 2022 – i.e. UniCredit, Intesa Sanpaolo, Bper Banca, Banco Bpm and Banca Monte dei Paschi di Siena – “the new tax will significantly reduce their net income”. The effect on each bank will depend on factors such as the geographic diversification of their revenues. For example, UniCredit's national net interest income represented only 36% of its total net interest income in 2022.
“We estimate – adds Moody's – that the majority of banks will benefit from the tax ceiling of 0.1% on total assets”.
ALL THE CONSTRAINTS ON THE PROFITABILITY OF ITALIAN BANKS ACCORDING TO MOODY'S
The new bank tax – continues the Moody's report – would add to a series of other constraints on the profitability of Italian banks, such as the modest lending activity, the increase in operating expenses due to high inflation and a gradual increase in financing costs.
However, according to Moody's calculations, "the profitability of most banks for 2023, net of the tax on extraordinary gains estimated, would remain above the net income of 2022".
NOT ONLY ITALY, HOW THE RATING OF BANKS IS CHANGING
Italy – Moody's points out – is following other European countries that have imposed similar taxes on their banking systems, such as Spain, Hungary and the Czech Republic. Spain, for example, introduced a bank tax in November 2022 applicable in 2023 and 2024 and aims to generate around €1.5 billion annually. Unlike the Italian regime, which applies to all banks in the country, the Spanish levy applies only to banks that generated more than €800 million of taxable income in 2019 or that are supervised by the European Central Bank.
FITCH CALLS FOR CALM ON BANKS' RATINGS
Fitch throws water on the fire. According to the rating agency Fitch, the new tax on extra profits introduced by the Meloni government will have an impact on the profits of Italian banks but not on their rating.
"The announcement of a tax on Italian banks' extra profits, in the form of a levy aimed at increasing the interest margin (NII) achieved by institutions thanks to the increase in interest rates, will not affect the ratings of domestic banks", writes Fitch Ratings in a report . The levy "will reduce short-term profitability, but will not lead to downgrades given its one-off nature and applied at a time of cyclically high profitability and comfortable capital ratios," the rating agency adds.
According to Fitch, smaller, more specialized banks are expected to be less affected by the levy as their funding costs have generally risen faster as interest rates have risen, limiting the benefit to the NII. That said, the levy could limit the lending capacity of some smaller banks, as they tend to have tighter capital buffers and rely more on internal capital generation to finance organic growth.
WHAT SCOPE RATINGS SAYS
Scope Ratings analyst Alessandro Boratti highlights : “The positive momentum of Italian banks continued in the second quarter, mainly thanks to wider interest margins and low loan loss provisions, while concerns about asset quality and funding have so far proved to be unfounded. However, the announced capital gains tax will reduce the profitability of banks in the second half year”.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/fitch-moodys-tassa-extramargini-banche/ on Thu, 10 Aug 2023 14:11:35 +0000.