Italian Bank Earnings to Remain Low Over 3 Years, Prometeia Says

Earnings of Italian banks will remain low over the next three years as the country’s economy struggles to recover and lenders are forced to meet stricter European capital rules, according to research group Prometeia.

Italian banks may generate profit of 21 billion euros ($27 billion) from 2013 to 2015, about a third of the 61 billion euros in net income in the 2005-2007 period, the Bologna-based institute said in a report. Lenders in the country may report about 2.4 billion euros of profit this year, Prometeia said.

“The external environment, market conditions and restructuring measures required by tougher regulation will hurt banks’ profitability,” Prometeia Deputy Chairman Giuseppe Lusignani said at today’s presentation in Milan. Banks will further reduce costs to offset higher provisions and lower margins, he said.

Italy’s longest recession in two decades is depressing interest rates and hurting margins for lenders in the country, including UniCredit SpA and Intesa Sanpaolo SpA, Italy’s two biggest banks. Italian companies and households are struggling to repay debts, forcing banks to set aside more money for bad loans.

Loan-loss provisions through 2015 may reach 48 billion euros, according to Prometeia, and return on equity may rise from 0.9 percent this year to 3.9 percent in 2015. The institute expects net interest income to decline 1.5 percent this year, while banks’ operating costs may decline 3.9 percent.

Capital Gap

Some of the 13 banks listed on the Italian stock exchange still need a total of 4 billion euros to meet the Basel III capital target, Lusignani said.

The Basel Committee on Banking Supervision, which represents central banks and regulators in 27 nations and sets capital standards worldwide, will force lenders to have common equity equal to at least 7 percent of assets, weighted according to their risk, by 2019.

“There are lenders in our universe that still need capital to meet the 7 percent common equity target,” he said.