Italy's biggest lenders have achieved top marks in the first sessions of the European Central Bank's (ECB) Supervisory Review and Evaluation Process (SREP), which monitors the health of banks in terms of capital requirements and risk management. Yesterday some institutes such as Intesa Sanpaolo, UniCredit, Ubi, Bper and Credem revealed the minimum capital requirements proposed by the ECB for 2017. And all of them presented Common Equity Tier 1 (CET 1) ratio levels (or the ratio between core equity and risk-weighted assets) significantly above the minimum levels imposed by Frankfurt.
During the next weeks, following the approval of the Single Supervisory Mechanism (SSM), the results of the other banks that have undergone European monitoring will be released. Those banks have until today received only informal indications. Among there are the two from the Veneto region, who are working on a potential merger; Carige, which has challenged the results of ECB stress tests; and Bpm and Banco Popolare, who will receive the request during the next weeks, once the new combined entity will have become a reality. It is still not clear if there will be indications for Monte dei Paschi di Siena.
The figures of the big players
Yesterday Intesa Sanpaolo said it had received a Cet 1 ratio request of 7.25% on a consolidated basis under transitional arrangements for 2017, which compares to the 12.8% ratio it held in September 2016, net of around €2.25 billion of accrued dividends in the first nine months of the year. That is a buffer of more than 5 percentage points above the minimum which confirms the solidity of the bank led by Carlo Messina.
UniCredit's margins are also secure. It received a request of 8.75% compared to its level of 11%. Ubi's capital buffer is also ample: it can count on a Cet 1 of 11.68%, more than 4 percentage points above a 7.5% minimum requirement for 2017. Credem is also far above the minimum required. It has received a request of 6.75% for 2017, compared to the 13.51% registered at the end of September. Finally, Bper was asked for a ratio of 7.25% while it can boast of a current level of 14.47%.
The minimum level and guidance
Overall, all the banks that released their results yesterday, awaiting the approval of the requests on the part of the SSM, showed they had capital margins well within the demands of the ECB. This is good news for anyone considering extraordinary operations, such as an increase in credit valuation adjustments or potential acquisitions of other banks. It is important to note however that the minimum Cet 1 requirement is the “visible” part of the ECB requests which Frankfurt has authorized banks to publish. From this year, the capital guidance threshold has been added. This is a sensitive number that remains confidential between individual banks and Frankfurt, which has specifically requested banks to not reveal it.
This subject concerns the healthier banks less than those who show more riskier margins than those requested by the ECB. In the guidance, which is reasonably higher than the minimum requirement, the results of 2016 stress tests combine with part of the adjustments deriving from inspections that the ECB launched during the year. Though not binding, the guidance is a number that banks will look at closely from this year. This is because it is the indication to strive for, as in the case of non-compliance the ECB will be closely monitoring banks who will have to present detailed action places to return to a more balanced situation.
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