The Italian Banking System in the Perspective of the Banking Union. Fabio Panetta Member of the Governing Board - Banca d Italia

Transcription

1 The Italian Banking System in the Perspective f the Banking Unin Fabi Panetta Member f the Gverning Bard - Banca d Italia Lndn, Nvember 21, 2013

2 Outline f the Presentatin 1. The Banking Unin (BU) prject the Single Supervisry Mechanism (SSM) the Balance Sheet Assessment (BSA) 2. The Italian banking system in the perspective f the SSM a bird s eye view n the current state f affairs credit quality, capital and prfitability the Bank f Italy s supervisry actin 3. Summary assessment & utlk

3 The Banking Unin in the Eur Area What is the BU? A Single Supervisry Mechanism (SSM) by the ECB & NSAs A Single Reslutin Mechanism (SRM) A harmnized depsit guarantee system Financial backstps and bank recapitalizatin at the EU level Why a BU in the Eur Area? Break the perverse banks/svereigns feedback lp Preserve the Single Market, avid fragmentatin Empwer a supranatinal supervisr fr large, crss-brder banks

4 The SSM: Cverage, Timeframe Mandatry fr EA cuntries, pen t ther EU cuntries ECB will directly supervise 130 large banks (TA> 30bn r TA>20% f dmestic GDP) NSAs will supervise the remaining 6,000 banks fllwing cmmn guidelines SSM will be peratinal in Q4-14 Frm Q4-13 t Q3-14 ECB & NSAs will cnduct a cmprehensive assessment including a balance sheet assessment (BSA) and a stress test (ST)

5 The BSA: a Key Step f the BU Prcess Exercise must be credible and rigrus, in rder t: restre full cnfidence n banks sundness enhance transparency f their balance sheets This requires putting banks n a level playing field (eg using severe/hmgeneus definitins f NPLs) and reaching paque crners f balance sheets (L3 assets, derivatives, etc.) Pssible fllw-up includes recapitalisatin Viable banks shuld be recapitalised first f all by private investrs (n bail-uts) but public backstp will be available upfrnt (therwise the credibility f the exercise might be put at risk) 5

6 Italian Banks and the BU The BU will bring straight benefits t Italian banks by: reducing market fragmentatin, thus imprving funding cnditins increasing transparency, hence cmparability f balance sheets breaking the link between svereign risk and bank risk Italian banks are ready fr the BU and the BSA

7 Italian Banks and the BU The BU will bring straight benefits t Italian banks by: reducing market fragmentatin, thus imprving funding cnditins increasing transparency, hence cmparability f balance sheets breaking the link between svereign risk and bank risk Italian banks are ready fr the BU and the BSA The abve arguments, hwever, are NOT meant t dwnplay the risks that the Italian banking system faces

8 Banks Key Prblem: Rising Credit Risk NPLs and bad lans f Italian banks (% f lans) NPLs Bad lans Credit quality is deterirating, driven by lans t nn-financial crpratins (NFCs). HHs mre resilient Prfitability and Prvisins f Italian Banks (billin eurs) Operating Prfits Prvisins and Net Value Adjustments fr Lan Impairment Grss (perating) prfits have resumed grwth in 2012 (but 2013 results likely affected by lw rates). The increase in prvisining is eating up a large part f grss prfits. Net prfitability is lw

9 Banks Key Prblem: Rising Credit Risk (2) Flws f new NPLs: Firms New NPL rate New bad lan rate Grss perating prfits sufficient t cver lan lss prvisins in 2013 and 2014 The flw f new NPL and f bad lans t NFCs are shwing signs f a turnarund.

10 Italy s Classificatin Standards Are Rigrus: Credit Risk May Lk Larger Than it is NPL rati f Italian banks (% f lans) Cverage rati f Italian banks (% f NPLs) Accunting and supervisry standards f Italian banks December 2012 Accunting and supervisry standards f Italian banks December 2012 Accunting and supervisry standards f large Eurpean banks Accunting and supervisry standards f large Eurpean banks Italian banks fllw prudent supervisry standards If Italian banks fllwed the standards used in ther jurisdictins (e.g. excluding fully-cllateralized NPLs) then: the NPL rati wuld be 1/3 lwer cverage ratis wuld be higher by 20 pct. pints NPL definitin prpsed by EBA is in line with (r less cmprehensive than) Italy s definitin. 0

11 Stck f NPLs Will Have t Be Reduced Market fr assets securitizatin very thin. Price differential between supply and demand f NPL large but likely t narrw: The Bank f Italy s recent actin n value adjustments Reduced financial market fragmentatin (ecnmic recvery, SSM cmprehensive assessment) The Stability Bill fr 2014 prvisins n tax treatment f lan lsses and value adjustments

12 Banks Hlding f Svereign Bnds Purchases f svereign bnds by Italian banks Italian svereign bnds f nn-residents Large purchases f dmestic svereigns ver 2 years. a. ample differential sv s vs lans b. precautinary demand c. fragmentatin In last 3 mnths sv. prtfli shrank ( 10bn), due t imprvement in (a), (b), (c). The cnditins f svereign markets are imprving. Nt just rates and spreads: freign hldings are increasing.

13 17% 15% 13% 11% 9% 7% 5% BUT the system has several pints f strength Capital Psitins Cntinue t Imprve Tp 5 Banking Grups Ttal Capital Rati Cre Tier (June) 13% 11% 9% Other Banks Ttal Capital Rati Cre Tier (June) Capital ratis have increased cntinuusly since 2008, as a result f bth capital issues and lwer RWAs. Bank capital injectins by the public sectr in selected cuntries (bn. eurs) Italy: 0,3% f GDP The amunt f public funds injected int the banking system by the Italian State is very lw.

14 Retail Funding Cntinues t Grw Retail Funding and Funding Gap Funding Gap as a Percentage f Lans Retail Funding (12 mnth pct grwth) -5 Mar 03 Mar 04 Mar 05 Mar 06 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 The system is retail-based depsits cntinued their steady grwth thrughut the crisis the funding gap is lw and declining

15 Liquidity Cnditins and Eursystem Brrwing 0% 25% 50% 75% 100% Cmpsitin f Italian Banks' Funding Dec Dec Dec Jun Retail Whlesale Eursystem refinancing Availability f Cllateral fr Italian banks 302 bn. 334 bn. Overall liquidity psitin is satisfactry Dependence n ECB funding significant but falling banks (especially large nes) have regained access t whlesale markets Available eligible assets cntinue t increase Onging wrk t make revlving lans (an Italian feature) and pls f lans pledgeable

16 Leverage is Lw and Declining EU Banks' Leverage AT BE DK FR DE IT NL UK ES SE EU Banks are deleveraging. Credit grwth is negative, mainly in respnse t weak lan demand by NFCs Leverage (ttal assets / tier1 capital) is lw by internatinal standards Level 3 assets f Eurpean banks (%) Level 3 assets are negligible

17 Supervisry Actin by Banca d Italia Capital strengthening has been driven by supervisry pressure Ad hc actin n prvisining initiated in 2012, als by running targeted n-site inspectins Intensified ff-site mnitring Pressure n cst cutting and restructuring (i.e. dispsing f nn-cre assets)

18 Capital Needs: the FSAP f the IMF Scenaris IMF FSAP estimates f cumulated capital shrtfall (billin eurs) # f failing banks CET 1 T 1 capital shrtfall # f failing banks capital shrtfall bn % f GDP bn % f GDP Baseline (at end-2017) Lw grwth (at end-2017) Adverse (at end-2015) Capital benchmark: Basel 3 phasing in fr bth CET1 and T1. IMF (FSAP, Sept. 2013): 32 banks, individual data: capital need in stressed cnditins bn ( % GDP) shrtfalls mainly in small-medium lcal banks Estimates f private analysts: based n hetergeneus (smetimes simplistic!) hyptheses and methdlgies, but results are f similar magnitude

19 Summary Assessment & Outlk The Italian banking system has shwn strng resilience in the face f an exceptinal ecnmic crisis A successful, gradual exit frm currently stressed cnditin is pssible SSM and BSA are nt a further prblem. They are part f the slutin

20 Summary Assessment & Outlk Ecnmic recvery after a duble dip recessin is the critical success factr fr Italian banks. It is a precnditin t start reductin f the stck f nnperfrming lans and t restre prfitability. Expectatins fr key ECB interest rates t remain lw fr as lng as necessary prvide supprt t recvery Cntinuing natinal effrts at refrm f the ecnmy and cnslidatin f public finances are key

21 Thank yu!