Italy: Towards an improvement in the quality of bank balance sheets? – BNP Paribas

Thomas Humblot, Research Analyst at BNP Paribas, suggests that the Q1 2018 profit and loss accounts of Italy’s biggest banks indicate an ongoing decline in the cost of risk as a share of Operating Income (OI).

Key Quotes

“This ratio, which shows the share of bank revenues absorbed by the deterioration in the quality of portfolios, has fallen back to 2008 levels.”

“Since OI has been relative stable since 2010, the ratio’s movements are mainly attributable to the cost of risk, which rose sharply between 2010 and 2011, in keeping with the economic downturn.”

“For the five selected banks, the cost of risk increased to EUR 37 bn from EUR 14 bn.”

“The effects of the sluggish economy were partially alleviated, which helped lower the cost of risk ratio.”

“Finally, the decline in the cost of risk ratio for the big Italian banks in 2017 suggests that the quality of their portfolios has not deteriorated any further.”