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Nomura — Banca d'Italia — Investor Presentation (November 2013)
21 slides from Nomura's investor presentation, Nov 21, 2013
Slide 1: The Italian Banking System in the Perspective of the Banking Union
The Italian Banking System in the Perspective of the Banking Union Fabio Panetta Member of the Governing Board - Banca d’Italia London, November 21, 2013
Slide 2: Outline of the Presentation
Outline of the Presentation 1. The Banking Union (BU) project o the Single Supervisory Mechanism (SSM) o the Balance Sheet Assessment (BSA) 2. The Italian banking system in the perspective of the SSM o a bird’s eye view on the current state of affairs o credit quality, capital and profitability o th
Slide 3: The Banking Union in the Euro Area
The Banking Union in the Euro Area o What is the BU? o A Single Supervisory Mechanism (SSM) by the ECB & NSAs o A Single Resolution Mechanism (SRM) o A harmonized deposit guarantee system o Financial backstops and bank recapitalization at the EU level o Why a BU in the Euro Area? o Break the pervers
Slide 4: The SSM: Coverage, Timeframe
The SSM: Coverage, Timeframe o Mandatory for EA countries, open to other EU countries o ECB will directly supervise 130 large banks (TA>€30bn or TA>20% of domestic GDP) o NSAs will supervise the remaining 6,000 banks following common guidelines o SSM will be operational in Q4-14 o From Q4-13 to Q3-1
Slide 5: The BSA: a Key Step of the BU Process
The BSA: a Key Step of the BU Process o Exercise must be credible and rigorous, in order to: o restore full confidence on banks’ soundness o enhance transparency of their balance sheets o This requires putting banks on a level playing field (eg using severe/homogeneous definitions of NPLs) and reach
Slide 6: Italian Banks and the BU
Italian Banks and the BU o The BU will bring straight benefits to Italian banks by: o reducing market fragmentation, thus improving funding conditions o increasing transparency, hence comparability of balance sheets o breaking the link between sovereign risk and bank risk o Italian banks are ready f
Slide 7: Italian Banks and the BU
Italian Banks and the BU o The BU will bring straight benefits to Italian banks by: o reducing market fragmentation, thus improving funding conditions o increasing transparency, hence comparability of balance sheets o breaking the link between sovereign risk and bank risk o Italian banks are ready f
Slide 8: Banks' Key Problem: Rising Credit Risk
Banks’ Key Problem: Rising Credit Risk 21 19 NPLs and bad loans of Italian banks (% of loans) o Credit quality is 17 15 deteriorating, driven by 13 NPLs loans to non-financial 11 corporations (NFCs). HHs more resilient 9 7 5 Bad loans 3 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 201
Slide 9: Banks' Key Problem: Rising Credit Risk (2)
Banks’ Key Problem: Rising Credit Risk (2) Flows of new NPLs: Firms o Gross operating profits sufficient to cover loan loss New NPL provisions in 2013 and 2014 rate New bad o The flow of new NPL and of loan rate bad loans to NFCs are sho- wing signs of a turnaround.
Slide 10: Italy's Classification Standards Are Rigorous: Credit Risk May Look Larger Than it is
Italy’s Classification Standards Are Rigorous: Credit Risk May Look Larger Than it is NPL ratio of Italian banks (% of loans) 14 o Italian banks follow prudent supervisory standards December 2012 12 10 o If Italian banks followed the 8 Accounting and Accounting and standards used in other jurisdicti
Slide 11: Stock of NPLs Will Have to Be Reduced
Stock of NPLs Will Have to Be Reduced o Market for assets securitization very thin. Price differential between supply and demand of NPL large but likely to narrow: o The Bank of Italy’s recent action on value adjustments o Reduced financial market fragmentation (economic recovery, SSM comprehensive
Slide 12: Banks' Holding of Sovereign Bonds
Banks’ Holding of Sovereign Bonds o Large purchases of domestic Purchases of sovereign bonds by Italian banks sovereigns over 2 years. a. ample differential sov’s vs loans b. precautionary demand c. fragmentation o In last 3 months sov. portfo- lio shrank (€10bn), due to improvement in (a), (b), (c)
Slide 13: Capital Positions Continue to Improve
BUT the system has several points of strength Capital Positions Continue to Improve Top 5 Banking Groups Other Banks o Capital ratios have 17% 13% 15% increased continuously Total Capital Ratio Total Capital Ratio 13% since 2008, as a result of 11% 11% 9% both capital issues and Core Tier 1 Core Tie
Slide 14: Retail Funding Continues to Grow
Retail Funding Continues to Grow Retail Funding and Funding Gap 25 Funding Gap as a Percentage of Loans o The system is retail-based o deposits continued 20 15 their steady growth 10 throughout the crisis o the funding gap is low 5 Retail Funding (12 month pct growth) 0 and declining -5 Mar 03 Mar 0
Slide 15: Liquidity Conditions and Eurosystem Borrowing
Liquidity Conditions and Eurosystem Borrowing Composition of Italian Banks' Funding 100% o Overall liquidity position is satisfactory 75% o Dependence on ECB fun- 50% ding significant but falling 25% o banks (especially large ones) have regained access 0% Dec - 2008 Dec - 2010 Dec - 2012 Jun - 2013
Slide 16: Leverage is Low and Declining
Leverage is Low and Declining EU Banks' Leverage 30 o Banks are deleveraging. Credit growth is negative, 25 mainly in response to weak 20 15 loan demand by NFCs o Leverage (total assets / 10 5 tier1 capital) is low by 0 international standards AT BE DK FR DE IT NL UK ES SE EU Level 3 assets of Europ
Slide 17: Supervisory Action by Banca d'Italia
Supervisory Action by Banca d’Italia o Capital strengthening has been driven by supervisory pressure o Ad hoc action on provisioning initiated in 2012, also by running targeted on-site inspections o Intensified off-site monitoring o Pressure on cost cutting and restructuring (i.e. disposing of non-c
Slide 18: Capital Needs: the FSAP of the IMF
Capital Needs: the FSAP of the IMF IMF FSAP estimates of cumulated capital shortfall (billion euros) CET 1 T1 Scenarios # of failing # of failing capital shortfall capital shortfall banks banks €bn % of GDP €bn % of GDP Baseline (at end-2017) 5 1.0 0.1 10 3.4 0.2 Low growth (at end-2017) 11 4.9 0.3
Slide 19: Summary Assessment & Outlook
Summary Assessment & Outlook o The Italian banking system has shown strong resilience in the face of an exceptional economic crisis o Asuccessful, gradual exit from currently stressed condition is possible o SSM and BSA are not a further problem. They are part of the solution
Slide 20: Summary Assessment & Outlook
Summary Assessment & Outlook o Economic recovery after a double dip recession is the critical success factor for Italian banks. It is a precondition to start reduction of the stock of nonperforming loans and to restore profitability. o Expectations for key ECB interest rates to remain low for as lon
Slide 21: Thank you!
Thank you! es BANCA D'ITALIA SQ As EUROSISTEMA
Banca d'Italia — Investor Presentation (November 2013) on 6ix