Tax on ancillary profits, Fitch pours water on the fire: “It will not affect the ratings.” Moody’s: “Bank profits will remain above 2022”

While Italian banks The stock market continues to recover after Tuesday’s declines, agencies said reviews With different nuances explain that the new tax that will affect the increase interest margin it will have no disruptive effects. If not a temporary snippet of this year’s all-time highs. For Moody’s be reduced propensity to borrow from that banks But it certainly won’t put them in a crisis: Despite a levy of “approx 15% of 2022 consolidated net profit” of the whole system, the profitability of most institutions will remain “above the net income of 2022”. Fitch throws grist on the fire by pointing out that the levy “will reduce profitability in the short term, but it will not result in a downgrading of ratings Due to its unique nature and application at a given time cyclically high profitability And comfortable capital ratios“.

Moody’s notes that the tax will, however, be reduced by the “ceiling” announced by the minister Giancarlo Giorgettiwould contribute to a number of other “constraints” on Italian banks’ profitability, such as: modest credit businessthe increase in operating costs due to the high inflation and a gradual increase in financing costs. The agency calculates that for a select group of banks, accounting for more than 60% of the Italian banking system’s net interest income at the end of 2022 – UniCredit, Intesa Sanpaolo, Bper Banca, Banco Bpm, Banca Monte dei Paschi di Siena – the new tax “will significantly reduce net income”. The impact on each bank would depend on factors like that diversification geography of their income. For example, UniCredit’s national NII in 2022 accounted for only 36% of the total NII.

Fitch estimates the pullout will generate €2.5 billion to €3 billion, mostly borne by big banks Intesa, UniCredit, Banco Bpm, Bper and Mps, as well as co-operative banking groups Iccrea Group and Cassa Centrale Banca. “These banks have experienced strong NII growth (interest margin ed) since the second half of 2022, as higher interest rates have impacted their assets, which are mostly floating rate, but far less their liabilities – the rating agency says – on which banks are largely funded insoles and their strong franchises have made it possible for them limit the pass-through of higher interest rates on customer deposits. In most cases, Fitch expects drawdowns to be capped at 0.1% of total assets, averaging about 30 basis points of risk-weighted assets. This equates to 10-15% of projected 2023 net income with internal capital generation and profitability eroding.”modest”.

Smaller, more specialized banks are likely to be less affected by the levy as their funding costs have generally increased at a faster rate as interest rates have risen, limiting the benefits to the NII. However, the levy could constrain the lending capacity of some smaller banks, as they typically do smaller capital buffers and rely more on internal capital generation to fund organic growth. The scenario is different in the event of a possible renewal of the levy: “Downside risks for the ratings could arise, as the negative impact on profitability would reduce the ability of banks to absorb loan losses in the event of an economic slowdown.” This could also affect the ability of banks to raise capital when needed, as this would reduce the attractiveness of the domestic banking sector for investors.

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