Consolidated interim report on operations as at 31 March 2020
The results of the first quarter of 2020 confirm the strategic value of the extraordinary operations completed during 2019. In fact, even in a context characterised first by a slowdown in the economy and then by the first effects of the health emergency, the BPER Group has shown a good ability to generate revenue (despite a limited contribution from finance, operating income came close to € 600 million), tight cost control, excellent levels of liquidity and capital strength. The bottom line for the period, while still positive for € 6.1 million, has been strongly affected by the additional adjustments made to loans for approximately € 50.0 million, the first significant intervention following the deterioration in the macroeconomic scenario caused by the health emergency. It is also worth remembering that the quarter is burdened with the ordinary contribution to the SRF for the whole of 2020 of € 32.0 million
The Group's high level of capital strength is confirmed by a Fully Loaded CET1 ratio[i] of 12.07%, a Phased In CET1 ratio[ii] of 13.60% and a capital buffer of € 1.8 billion compared with the minimum requirement set by the European Central Bank for 2020.[iii]
High liquidity position with an LCR index of 167.9%, well above the regulatory threshold of 100%, and a liquidity buffer of over € 11 billion
Asset quality improved during the quarter thanks to a reduced stock of gross and net non-performing loans (1.1% and 2.8% respectively) since the end of last year. Gross NPE ratio remained stable at 11.1% due to the containment of loans. The default rate has improved again and stands at 1.5% on an annualised basis, down from 1.7% in 2019. NPE coverage rose by 85 bps to 51.9%, improving in all categories. The cost of credit in the quarter was 27 bps (110 bps annualised), significantly affected by the additional adjustments to loans
Net loans decreased by 1.9% since the beginning of the year mainly attributable to the corporate segment and financial companies, while the retail sector is substantially stable. Total funding, which includes the Bancassurance segment, stood at € 165.6 billion, down by 5.6% from the end of 2019 mainly due to the market effect on indirect deposits, both managed and administered
Net operating income came to € 185.5 million in the period, being the difference between operating income of € 596.6 million and operating costs of € 411.1 million. Substantial maintenance of traditional revenues (-0.5% compared with the fourth quarter of 2019) with net interest income of € 308.0 million and net commission income of € 267.6 million. Operating costs down by 4.4% compared with the fourth quarter of 2019, net of non-recurring charges[iv]
Numerous initiatives have been adopted throughout those parts of Italy where the BPER Group operates to cope with the ongoing health, economic and social emergency, aimed at containing risks, protecting the health of customers and employees, ensuring the operational continuity of company processes and implementing economic support measures for individuals and businesses:
- business continuity and customer services are guaranteed with the activation of smart working methods for over 50% of the staff, incentives for the use of web services for customers and organisation by appointment at the branch for other services to the public;
- rapid adherence to government initiatives such as moratoriums, redundancy pay advances, guaranteed loans;
- two lines of credit have been made available directly by the BPER Group: the first for businesses to meet liquidity needs for a total of Euro 1 billion, the other to support private individuals, freelancers, artisans and shopkeepers, with an initial tranche of Euro 100 million;
- over 3 million Euro have been made available to the community to cope with the emergency caused by the health crisis. A significant part of these resources come from an internal fundraising campaign in which all Group staff participated, together with the management and the Board of Directors
The Board of Directors of BPER Banca has examined and approved the separate results of the Bank and the consolidated results of the Group at 31 March 2020.
[i] Estimated value excluding the effects of the transitional provisions in force and taking into account the result for the period, net of the expected pro-quota dividends, and the expected absorption of deferred tax assets relating to first-time adoption of IFRS9.
[ii] Reg. 2395/2017 "Transitional provisions for mitigating the impact of the introduction of IFRS 9 on own funds" introduced the so-called "phased-in" transitional regime for the impact of IFRS 9 on own funds, giving banks a chance to spread the effect on own funds over a period of 5 years (from March 2018 to December 2022), sterilizing the impact in CET1 by applying decreasing percentages over time. The BPER Banca Group has chosen to adopt the so-called "static approach" to be applied to the impact resulting from comparison between the IAS 39 adjustments at 31/12/2017 and the IFRS 9 adjustments at 1/1/2018.
[iii] To support supervised entities in facilitating the financing of the real economy in the extraordinary circumstances related to the spread of coronavirus (COVID-19), the ECB notified BPER Banca on 8 April 2020 and with effect from 12 March 2020, a new method of holding the Pillar 2 additional own funds requirement (of 2%), i.e. in the form of at least 56.25% of CET1 and 75% of T1. At 31 March 2020, the Common Equity Tier 1 Ratio requirement to be met was therefore equal to 8.125% Phased in and Fully Phased.
[iv] Operating costs in the fourth quarter of 2019 were € 614.8 million and included total non-recurring charges of € 185.0 million as detailed below: 1) the charges relating to the personnel retirement plan as a result of the trade union agreement signed at the end of October 2019 of € 136.0 million, accounted under caption "Staff costs"; 2) non-recurring charges relating to extraordinary transactions carried out in 2019 for € 17.2 million, accounted under caption “other administrative expenses ”; 3) net adjustments to property, plant and equipment and intangible assets for € 31.8 million. Net operating costs in the fourth quarter of 2019 amount to € 429.8 million, net of non-recurring charges.