Profitability and Balance Sheet Repair of Italian Banks

August 19, 2016

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Andreas Jobst, and Anke Weber. Profitability and Balance Sheet Repair of Italian Banks, (USA: International Monetary Fund, 2016) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The profitability of Italian banks depends, among other factors, on the strength of the ongoing economic recovery, the stance of monetary policy, and the beneficial effects of current and past reforms, notably to address structural obstacles to resolving nonperforming loans (NPLs) and to foster banking sector consolidation. Improved profitability would enable banks to raise capital buffers and accelerate the cleanup of their balance sheets. This paper investigates quantitatively the current and prospective earnings capacity of Italian banks. A bottom-up analysis of the 15 largest Italian banks suggests that the system is on the whole profitable, but that there is significant heterogeneity across banks. Many banks should become more profitable as the economy recovers, but their capacity to lend depends on the size of their capital buffers. However, a number of smaller banks face profitability pressures, even under favorable assumptions. There is thus a need to push ahead decisively on cleaning up balance sheets, including through cost cutting and efficiency gains.

Subject: Bank soundness, Banking, Countercyclical capital buffers, Distressed assets, Financial institutions, Financial regulation and supervision, Financial sector policy and analysis, Loans, Nonperforming loans

Keywords: Asset quality, Bank, Bank consolidation, Bank performance, Bank profitability, Bank soundness, Banks, Book value, Capital adequacy ratio, Capital requirement, Countercyclical capital buffers, Distressed assets, Global, Lending, Loans, Nonperforming loans, Profit and loss account, Profitability, Reducing NPLs, SSM bank, Veneto Banca SCpA, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/175
Stock No:

WPIEA2016175
ISBN:

9781475527513
ISSN:

1018-5941

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