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The semi-annual report at the end of the period is expected to confirm that the growth of bank profits has not stopped. The record performance in 2023 is the background: the financial profit margin jumped from 3.84 billion to 62.1 billion in two years, and the loan adjustment plummeted from 3.81 in 2021 to 6.3 billion, pushing the system net profit to 32.7 billion (an increase of 132% over 2021). 2013.
In addition to statements by some bank representatives, the March quarterly reports of the main groups (which represent about 80% of the sector) raised the bar and expectations for profits for 2024, with a final profit of 8 billion and a cash profit of 13. Subsequently, while waiting for the ECB to cut interest rates from June, the data for the first five months of 2024 (published by the Bank of Italy and Abi) confirm the huge difference (also a record) in the average customer interest rate: 355 basis points, compared to an average of 332 basis points last year. From the customer spread and the return on assets of 4.16% (3.78% in 2023), the financial profit of financing households and companies will increase by 2.3 billion per year: 2,042 billion as of May 31 – deposits, repurchase agreements and bonds – with an average interest rate of 1.26%, while the loan interest rate (1,276 billion) is the highest at 4.81%.
Account holders penalized
In April, the current account balance exceeded 1.3 trillion yuan, with a collection rate of 64%. This is a spot collection. According to the distribution shown in the latest balance sheet, major banks allocate 10% for customer spot loans, 62% for matured loans, and then invest the remaining 28% in securities countries and other work. In theory, the current account does not have an investment function for account holders. But in practice, as we have seen, it is beneficial to banks.
However, the remuneration for account deposits is fixed at 0.57% (while the remuneration for deposits not repaid until maturity is 2.49%). Specifically, the rate is 0.38% for household accounts (weak contractors) and 1.02% for corporate accounts. Before the long period of zero or negative interest rates, the average interest rate on household current accounts was 1.02% (monthly rate of 1.77%) and the average interest rate on corporate current accounts was 1.69% (maximum 3.10%) between 2000 and 2008. In those years, the remuneration on current accounts was equivalent to 50% (households) and 83% (corporates) of the official overnight deposit rate of the ECB.
After the introduction of negative interest rates, the ratio fell to one-fifth, stopping at 8% and 18% of the ECB rate from July 2022 to April last year, indicating that banks continue to procrastinate in re-pricing existing funds. If it is true that Italian banks have never applied negative interest rates to customer accounts, it should also be taken into account that they have benefited from ECB financing subsidies (TLTROs) since 2014, with the Bank of Italy estimating compensatory net income of $3.3 billion per year, equivalent to 0.22% of the current account balance.
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