Moody’s gives Italian banks a pass

The outlook for the  Italian banking system  has moved from negative to stable. 

So estimates the rating agency Moody’s in a report on Italian banks, which are expected to improve thanks to a further gradual reduction in non-performing loans, the notorious NPLs.

The banks’ funding conditions will improve, the agency adds, and their capital will remain stable.

“We expect problem loans at Italian banks to fall in 2020 for the fifth consecutive year”  – said Fabio Iannò, Senior Vice President at Moody’s.  

However, according to European Banking Authority data, their ratio of 8% remains more than double the European Union average of 3%.

We also take into account our forecasts of weak but positive growth in Italian GDP and our stable outlook on the rating of Italian  sovereign debt ”.

Moody’s: Italian banks with stable profitability

The rating agency estimates that Italian banks will have stable or moderately improved profitability in 2019 and 2020 owing to lower wholesale funding costs, a lower cost of risk and greater efficiency resulting from recent restructuring initiatives.

Capital ratios “appear set to remain stable, with almost all lenders reporting buffers above regulatory requirements”

The issuance of wholesale debt by  Italian banks, Moody’s further points out, rose in 2019 from a low level in 2018. Funding costs for the institutions have fallen with the decline in the spread on sovereign bonds, although these “remain volatile”.

Earnings generation is “weak owing to still-high loan losses and high operating costs”