italian economy and banking system - ubi banca 01_luigi_dimartino.pdf · luigi di martino fabrizio...

Luigi Di Martino

Fabrizio Honisch

UBI Banca

Research Department

Italian Economy and Banking System

2 2

Topics

Part I - Italian Economy

General Overview

GDP Evolution and Prospects

Main Strenghts and Weaknesses

Final Remarks and Conclusions

Part II - Italian Banking System

Italian Banking total assets

The General Framework

Lending and Funding

Capital Ratios

Final Remarks and Conclusion

3 3

Gross Domestic Product (GDP): an international overview

4 4

Eurozone vs World: population and GDP contribution

5 5

Gross Domestic Product (GDP): an international comparison in Euro

2013 GDP per capita of Lombardy = 33.9k € and Piedmont = 28.5k € (Est. Prometeia)

6 6

Italy: prospects of slow recovery of Italian GDP thanks to foreign

trade and the moderate recovery in domestic demand

Italian GDP should continue to benefit from the positive trend of

foreign trade, as well as a slight improvement in domestic demand.

Factors supporting the economy in 2014 could come from:

the very accommodating monetary policy;

the process of normalization of financial markets conditions;

the gradual strengthening of foreign demand which reflects

the expansion of the global economy;

the recovery of business and consumers confidence in Italy.

7 7

Italy: improvement of the Italian trade balance in relation both to EU

partners and to countries outside the EU

8 8

Italian exports have returned to pre-crisis levels thanks to the

dynamics of trade with countries outside the EU

9 9

Contribution of Italian manufactured products world exports

2nd in EU 3rd in EU

Within European Union, Italy is the 2nd largest

country by contribution of manufactured products

world exports to country GDP and 3rd by market

share in manufactured products world exports.

10 10

Italy: progressive improvement in business confidence.

Is a moderate upturn in industrial production starting?

11 11

Italy: the development of the Purchasing Managers Index could

confirm the possible recovery in industrial output

12 12

The rebound of consumer confidence index recorded in 2013 could

anticipate a slow recovery in household spending

13 13

Italy vs Euro : gross saving rate evolution

In the recent quarters, the Italian households rate of savings – both

manufacturing and consumer households – has grown shrinking

the gap vs Eurozone recorded during the crisis.

Savings increase, associated with the improvement in confidence,

could anticipate a rise in consumption at a moderate pace.

14 14

Italy is characterized by a low level of Private Debt

15 15

Italy: households net wealth represents about 4.3 times Public Debt

Source: Eurostat and Bank of Italy

8542

16 16

Households net wealth in Italy: one of the highest in the world

2011 Households’ Net Wealth: an international Comparison

(Households’ Net Wealth on Disposable Income)

2.0 3.6

4.3 5.5

6.0 5.3

3.2

2.2

2.0

2.4 2.1

3.0

0

1

2

3

4

5

6

7

8

9

Canada USA Germany Italy France UK

Real Assets Net financial assets

Source: Bank of Italy, “Household Wealth in Italy”, December 2013

7.9

5.2 5.8

6.3

8.1 8.3 (X)

17 17

Forecasts on Italian GDP (% change YoY)

18 18

Primary Balance, Public Deficit & Debt: an international comparison

19 19

Long average residual maturity of Italian Public Debt

Source: Bloomberg, elaborations by UBI Research Department

20 20

Italy: Primary Balance, Public Deficit & Debt

21 21

Italy has an important amount of State Assets to dispose

Administration Estimated market value (bln/€) Actual yield Target yield

State 185

Real estate 72 0.1% 6.0%

Equity interests 63 5.4% 7.4%

Concessions/franchises 50 0.5% 6.3%

Regions and local entities 386

Real estate 349 0.5% 6.0%

Equity interests 17 3.0% 4.0%

Concessions/franchises 20 0.5% 6.0%

Total public administration 571 0.9% 5.7%

Source: MEF, Relazione sulle Privatizzazioni, September 2011

22 22

Italy: low productivity

23 23

Italy: shadow economy as a percentage of official GDP

24 24

Paese France Germany Italy Spain Japan United Kingdom United States

Ease of Doing

Business -

Rank

38 21 65 52 27 10 4

Starting a

Business41 111 90 142 120 28 20

Dealing with

Construction

Permits

92 12 112 98 91 27 34

Getting

Electricity42 3 89 62 26 74 13

Registering

Property149 81 34 60 66 68 25

Getting Credit 55 28 109 55 28 1 3

Protecting

Investors80 98 52 98 16 10 6

Paying Taxes 52 89 138 67 140 14 64

Trading Across

Borders36 14 56 32 23 16 22

Enforcing

Contracts7 5 103 59 36 56 11

Resolving

Insolvency46 13 33 22 1 7 17

Ran

kin

g b

y ca

tego

ry

Country

Main advanced countries comparison (ranking from 1 to 185):

the legal framework impact on the ease of doing business

2014

Source: Doing Business 2014 - World Bank Survey

25 25

Italy: main strengths and weaknesses

Within EU: 2nd by manufactured

products exports contribution to

country GDP and 3rd by world exports

market share

Households net wealth = about 4.3

times public debt and one of the highest

in the world

Low private debt

Low productivity* (€32.2 vs. €43.0 in

Germany, €45.9 in France and €31.9 in

Spain)

High public debt (even if it is mostly

owned by residents)

Slow and complex legal system

* Source: Eurostat. Q4 2013 Labour productivity per hour worked

26 26

Italian Economy: final remarks and conclusions

World economic growth is continuing its course in 2014 and also Italy should return to expand even if at a moderate pace.

The recovery in our country is still fragile and the pace of expansion should be lower than the Eurozone. However, the

economic outlook shows several signs of improvement from the qualitative and, partially, quantitative point of view.

Positive factors

Favourable international context, which is giving a positive contribution to net exports.

Easing conditions in terms of monetary policy and progressive improvement of the financial markets.

Recovery and strengthening of both business and consumer sentiment.

Financial soundness of Italian households vs European, that could support the slight recovery in domestic demand.

Risk factors

The pace of growth will remain modest and lower than the rest of Euro area for several years because of structural

problems whose solution will require a very long time (e.g., weak dynamics of productivity, high tax burden, ...).

During the crisis in Italy there has been a substantial loss of productive capacity due to cessations of business,

outsourcing and relocation of production abroad by firms.

In order to respect EU rules, there are prospective risks of correction measures on public accounts in the next

years mainly based on “optimistic" estimates about domestic growth.

Possible slowdown of foreign trade contribution to GDP caused by a potential moderation in the pace of growth in

emerging economies, as well as geopolitical tensions. In this sense, there could be a decline in demand for our

exports and/or an increase in the price of raw materials.

The Italian labour market is expected to remain weak for a long term, with obvious negative effects on the growth

rate of households consumption expenditure.

On the investments side, Italy continues to be considered not very favourable to carry out business activities and,

consequently, to attract foreign investors, also according to the “Doing Business” survey of World Bank and the

dynamics of foreign direct investments in recent years.

27 27

Italian Banking System vs European Union countries

Italian Banking System is one of the widest within Europe 27 in

terms of total assets.

It counts more than euro 4 thousands billions.

It’s the forth behind United Kingdom, Germany and France.

During the last few years it’s decreasing, but at a lower pace

respect to the most of the other European peers.

28 28

Ranking by total assets

Source: ECB, Bloomberg, elaborations by UBI Banca Research Department

29 29

One year change in total assets


30 30

... and since 31/12/2006


31 31

Evolution of italian banks total asset (31/12/2006=100)


32 32

Total asset and GDP

2013

Median = 2.7

Average = 3.4

Average (-Lux) =2.7

2006

Median = 2.5

Average = 3.6

Average (-Lux) =2.6

1.9 in 2006

Source: ECB, Eurostat, Bloomberg, elaborations by UBI Banca Research Department

33 33

The main framework

Italian Banking System is composed by 694 financial institutions

at the end of 2013 (36 less respect to the end of 2012).

It totalize more than 35 thousands branches with a reduction of

more than 700 units since 2007

More than 30 thousands persons are employed in Italian banks.

There’re about 1850 persons for each branch, much less than in

other European countries.

34 34

Inhabitants per branch at the end of 2012 and 2007


35 35

Distribution channels

2013

Source: Italian Banking Association (ABI) and GfK Eurisko

79% 10%

10%

89% other

channels

7% financial

advisors

87% branches

89%

traditional

channels

85% self service

zone

48% home / internet

banking

11% phone banking

11% mobile banking

90% credit and debit

card user

65% in 2005

36 36

Lending activity to households and non financial corporations

Total lending to Italian households and non financial corporations

reached a level of about euro 1.4 trillion at the end of march.

The actual amount is below to the pre crisis level still. The

contraction between December 2010 and March 2014 is about 2%.

Still, in the most recent months underline a gradual improvement

of lending activity, in line with an improved economic environment.

37 37

Households and non financial corporations total lending (12/2010=100)

Source: ECB, elaborations by UBI Banca Research Department

38 38

Lending activity to households based on destination

60% of lending to households is loans to house purchase and

10% is consumer credit.

These percentages have changed just a little bit since the last

recession. In particular, consumer credit collapsed during the

2012 -2013 period and lost ground respect to loans to house

purchase, while others loans had been confirmed as a 30% of

total lending.

The three categories are below the last year level, even if the

contraction is less deep.

The last ABI report underlines a 20% YoY increase in new

mortgages in the first quarter of 2014.

39 39

Lending to households (% change YoY)

consumer credit

collapsed during the

last recession ...

... and it’s

still weak


40 40

Lending to households based on destination


41 41

Lending to non financial corporations / households (%YoY)

Source: ECB, elaborations by UBI Banca research department

42 42

Credit quality

The non performing loans increased a lot in the last five years.

In the last quarter of 2008 they represented the 2.5% of total

loans to customers. In the same period of 2013 are the 9.2%.

Source: Bank of Italy, elaborations by UBI Banca Research Department

43 43

Funding

Direct funding from retail customers totals 1.7 trillion at the end

of April. Deposits are the 70% of total. Three years ago the

share was 65%, both for the decreasing of bonds and for the

increasing of deposits.

This trend hasn’t changed in the first four months of 2014:

bonds lost 2.2%, deposits gained 0.8%.

The funds from European Central Bank are decreasing in line

with the improving condition of markets sentiment on non core

sovereign debts and actually they’re about 200 billion of euro.

44 44

Direct funding from retail customers composition

The share of deposits is

constantly increasing

Source: Italian Banking Association (ABI), elaborations by UBI Banca Research Department

45 45

Direct funding from retail customers dynamic (31/12/2010=100)

Declining in bond

amount started in the

second quarter of 2011

and it’s not over yet

Source: Italian Banking Association (ABI), elaborations by UBI Banca Research Department

46 46

Borrowing at ECB by main and long term refinancing operations …


47 47

… refinancing operations and total asset ratio


48 48

Spread between lending and funding rates

3.5%

3.0%

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%

Source: Italian Banking Association (ABI)

Ap

r –

08

Ap

r –

09

Ap

r – 1

0

Ap

r –

11

Ap

r –

12

Ap

r –

13

May -

13

Ju

n –

13

Ju

l –

13

Au

g –

13

Sep

– 1

3

Oct

– 1

3

No

v –

13

De

c –

13

Ja

n –

14

Feb

– 1

4

Ma

r – 1

4

Ap

r –

14

The spread

between lending

and funding

rates tightened

about 1.5%

from 2008 and

2013.

Still, during the

last year it’s

widening again.

49 49

Tier I ratio and Total Capital Ratio

Italian banks in terms of

Tier I ratio are in line

with other Area euro

peers …

… as by Total Capital ratio.

Source: Italian Banking Association (ABI)

50 50

Italian Banking System: final remarks and conclusions

Italian banking system is mostly composed by traditional and

domestic banks. It’s one of the biggest banking system in Europe.

During the last crisis, it suffered both for lending and funding

activity. Balance sheet suffered the low spread between lending

and funding rates.

Non performing loans are still weighting on banks balance sheet.

Anyway, There is the sign of an improvement in lending activity

due to an increase in demand for loans.

51 51

Disclaimer

Il presente documento è riservato al personale del Gruppo Ubi Banca ed a Clienti Professionali e Controparti Qualificate, così come definiti nel

Regolamento Consob 16190/2007, individualmente identificati dalla Banca. Pertanto, la sua circolazione è strettamente limitata alle Unità

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