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Profitability and Balance Sheet Repair of Italian Banks

Author

Listed:
  • Andreas Jobst
  • Miss Anke Weber
Abstract
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.

Suggested Citation

  • Andreas Jobst & Miss Anke Weber, 2016. "Profitability and Balance Sheet Repair of Italian Banks," IMF Working Papers 2016/175, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2016/175
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    References listed on IDEAS

    as
    1. Luisa Carpinelli & Matteo Crosignani, 2017. "The Effect of Central Bank Liquidity Injections on Bank Credit Supply," Finance and Economics Discussion Series 2017-038, Board of Governors of the Federal Reserve System (U.S.).
    2. Mihaela Carpus Carcea & Daria Ciriaci & Dimitri Lorenzani & Peter Pontuch & Carlos Cuerpo, 2015. "The Economic Impact of Rescue and Recovery Frameworks in the EU," European Economy - Discussion Papers 004, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    3. Andreas Jobst & Ms. Huidan Huidan Lin, 2016. "Negative Interest Rate Policy (NIRP): Implications for Monetary Transmission and Bank Profitability in the Euro Area," IMF Working Papers 2016/172, International Monetary Fund.
    4. International Monetary Fund, 2016. "Italy: Selected Issues," IMF Staff Country Reports 2016/223, International Monetary Fund.
    5. Jose M Garrido & Emanuel Kopp & Miss Anke Weber, 2016. "Cleaning-up Bank Balance Sheets: Economic, Legal, and Supervisory Measures for Italy," IMF Working Papers 2016/135, International Monetary Fund.
    6. Luisa Carpinelli & Giuseppe Cascarino & Silvia Giacomelli & Valerio Vacca, 2017. "The Management of Non-Performing Loans: A Survey among the Main Italian Banks," Politica economica, Società editrice il Mulino, issue 2, pages 157-188.
    7. Jose M Garrido, 2016. "Insolvency and Enforcement Reforms in Italy," IMF Working Papers 2016/134, International Monetary Fund.
    8. Bholat, David & Lastra, Rosa & Markose, Sheri & Miglionico, Andrea & Sen, Kallol, 2016. "Non-performing loans: regulatory and accounting treatments of assets," Bank of England working papers 594, Bank of England.
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    Cited by:

    1. Jan Famfollet & Eliška Straková, 2018. "Italian solution of failing banks and its importance for banking union completion [Italské řešení selhávajících bank a jeho význam pro dokončení bankovní unie]," Současná Evropa, Prague University of Economics and Business, vol. 2018(1), pages 44-56.
    2. Mohaddes, Kamiar & Raissi, Mehdi & Weber, Anke, 2017. "Can Italy grow out of its NPL overhang? A panel threshold analysis," Economics Letters, Elsevier, vol. 159(C), pages 185-189.
    3. Andreas Jobst & Ms. Huidan Huidan Lin, 2016. "Negative Interest Rate Policy (NIRP): Implications for Monetary Transmission and Bank Profitability in the Euro Area," IMF Working Papers 2016/172, International Monetary Fund.
    4. Jose M Garrido & Emanuel Kopp & Miss Anke Weber, 2016. "Cleaning-up Bank Balance Sheets: Economic, Legal, and Supervisory Measures for Italy," IMF Working Papers 2016/135, International Monetary Fund.
    5. Elisabetta Montanaro & Mario Tonveronachi, 2017. "Vulnerabilita' del sistema bancario italiano. Diagnosi e rimedi (Dealing with the vulnerability of the Italian banking system)," Moneta e Credito, Economia civile, vol. 70(280), pages 299-368.

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