TEXT-FFitch: 2013 outlook for Italian banks remains negative

Fri Dec 14, 2012 12:51pm EST

Link to Fitch Ratings' Report: 2013 Outlook: Large Italian BanksDec 14 - Fitch Ratings' outlook for the major Italian banks for 2013
remains negative according to a newly published report. The outlook reflects the
difficult operating environment for the Italian banks in the midst of the
eurozone crisis. The weak domestic real economy has caused a sharp rise in
impaired loans, and Fitch expects asset quality to deteriorate further in 2013.
At the same time, earnings generation remains under pressure. Mitigating these
pressures are improvements in liquidity at the big banks and Fitch's expectation
that the Italian economy will gradually come out of recession in H213.

The Long-term Issuer Default Ratings (IDR) of UniCredit S.p.A 
('A-'/Negative/'a-'), Intesa Sanpaolo ('A-'/Negative/'a-'), Unione di
Banche Italiane - UBI Banca ('BBB+'/Negative/'bbb+') and Banco Popolare
 ('BBB'/Stable/'bbb') are based on their Viability Ratings (VRs). Banca
Monte dei Paschi di Siena's 'BBB'/Stable Long-Term IDR is based on its
Support Rating Floor (SRF), which is above its 'bb+' VR, which is on Rating
Watch Negative (RWN).

Fitch considers the sharp rise in impaired loans the main risk for the large
Italian banks. Gross impaired loans accounted for between 8.6% and 18% of the
five big banks' gross loans at end-September 2012, and Fitch expects a further
deterioration in 2013. This poses a risk as banks rely on the value of
collateral in the recovery process, which can be lengthy.

The banks' profitability remains weak mainly because of pressure on net interest
income arising from low deposit spreads and high loan impairment charges.
Revenue from carry trades, a focus on generating fees and commissions and
improved cost efficiency should at least mitigate earnings pressure in 2013.

With the exception of Banca Monte dei Paschi di Siena, which is set to receive
up to EUR2bn in government capital, the five big banks have managed to
strengthen capital ratios internally, which Fitch considers important given the
expected asset quality deterioration. At end-September 2012 all five big banks
reported regulatory core Tier 1 ratios above 10%, and UniCredit and Intesa
Sanpaolo reported estimated fully-loaded Basel III common equity Tier 1 ratios
of 9.3% and 10.5% respectively, which compares well with international peers.

All five big banks have also improved their liquidity, helped by the use of
funding from the European Central Bank (ECB), and a number of Italian banks have
managed to issue debt to institutional investors in H212. Three of the big five
banks, Intesa Sanpaolo, Banco Popolare and UBI Bancaoa, announced that their
Basel III Net Stable Funding Ratio and Liquidity Ratio were above the 100%
requirement at end-September 2012. This reflects their efforts in strengthening
funding, but both ratios are also helped by the use of longer-term central bank
funding.

Fitch believes that the negative outlook on the banking sector is unlikely to be
changed to stable unless prospects for profitability and asset quality improve.
A moderate increase in interest rates would give a material boost to net
interest income, the main driver of banks' income. Fitch believes that impaired
loans are likely to increase even after the domestic recession is over due to
the normal lag effect, but the first signs of improvement will include a
slowdown in the inflow of new impaired loans.

For further details, see the report "2013 Outlook: Major Italian Banks" on
www.fitchratings.com

Contact:

+44 20 3530 1000

Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email:
hannah.huntly@fitchratings.com.

Additional information is available at www.fitchratings.com.

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FITCH: 2013 OUTLOOK FOR ITALIAN BANKS REMAINS NEGATIVE
RPT-FITCH: 2013 OUTLOOK FOR ITALIAN BANKS REMAINS NEGATIVE