Banca IFIS: NPL Area in the spotlight (NBI +49%) in the first 9 months of 2015
(Thomson Reuters ONE) -
Banca IFIS: NPL Area in the spotlight (NBI +49%) in the first 9 months of 2015
The CEO Giovanni Bossi: "Profits up across all business areas"
Table of Contents
First nine months of 2015
1 January-30 September
· Net banking income: 327,1 million Euro (+55,2%)
· Net profit from financial activities: 305,0 million Euro (+68,4%)
· Profit for the period: 148,8 million Euro (+100,6%)
· Bad loans ratio in the Trade Receivables segment: 1,3%
· Cost of credit quality in the trade receivables segment: 79 bps
· Common Equity Tier 1 (CET1): 15,34% (13,89% at 31 December 2014)
· Total Own Funds Capital Ratio: 16,02% (14,21% at 31 December 2014)
· Hiring up: 140 new resources added (+57,3%).
3rd quarter 2015
1 July-30 September
· Net banking income: 62,4 million Euro (-7,9%)
· Net profit from financial activities: 57,2 million Euro (-3,5%)
· Profit for the period: 18,0 million Euro (-25,3%).
Comment on operations
Mestre (Venice), 27 October 2015 - The Board of Directors of Banca IFIS met
today under the chairmanship of Sebastien von Fürstenberg and approved the
interim financial report for the first nine months of 2015.
"The results confirm the strategy adopted by the Bank is sustainable and
profitable, with all business areas increasing their margins", says Giovanni
Bossi, Banca IFIS's CEO. "The acceleration in the performance of the non-
performing loans sector, in which we are leader in Italy, is impressive. We will
continue developing the potential of the various business units also in the
fourth quarter, thanks to our capital and liquidity position as well as, and
most importantly, the trust of our clients and stakeholders."
Operating performance
Consolidated Income Statement analysis
Net banking income amounted to 327,1 million Euro, +55,2% compared to the prior-
year period (210,8 million Euro in December 2014). The significant increase was
attributable to the surge in the DRL (+49,0%) and Tax Receivables (+41,5%)
segments, the positive contribution from trade receivables, and the gains
related to the rearrangement of part of the government bond portfolio completed
in April 2015 (gross 124,0 million Euro). This was partly offset by the ensuing
decline in the margins on said assets following the rearrangement of the
government bond portfolio.
The net banking income of the trade receivables segment (118,9 million Euro
compared to 116,0 million Euro in the first half of 2014, +2,5%) largely
referred to the Credi Impresa Futuro and Pharma business areas.
Credi Impresa Futuro's results were substantially in line with the same period
in 2014 (+1,8%). The Pharma business area's net banking income rose 3,4% year-
on-year. This result continued to be affected by the decline in purchase
commissions charged to the seller and classified as interest income: since late
2014, the Pharma business area has changed its market approach, buying packages
of receivables at par value (or slightly below par). Therefore, the
profitability of the operations is represented by the interest accrued on late
payments, conservatively recognising it below the rate of interest on arrears in
the case of voluntary payments, as well as settlements entered into in the
period. The Bank is working to further improve the accounting for this component
in accordance with the reference regulatory framework to better reflect the
actual profitability of this business area.
The trade receivables segment reported a turnover of 7,3 billion Euro (+25,1%
from September 2014), with outstanding loans totalling 2,7 billion Euro (+8,3%
from December 2014), and a 5% rise in the number of financed SMEs compared to
the prior-year period.
Net banking income in the DRL segment, which deals with acquiring and managing
non-performing exposures in the unsecured market, grew significantly to 29,8
million Euro compared with 20,0 million Euro in the prior-year period (+49,0%).
The excellent performance was the efficient of the robust trend in bills of
exchange and expressions of willingness-rising 25,9% overall (134,2 million Euro
compared to 106,6 million Euro at 30 September 2014)-and the acceleration in the
Legal Factory's judicial collection operations. It should be noted that net
banking income alone is not representative of the DRL segment's performance
since, as far as bad loans in the DRL segment are concerned, it does not account
for the economic impact of the changes in expected cash flows, which are
recognised under net impairment losses/reversals on receivables.
The Tax Receivables segment generated 11,5 million Euro (8,1 million Euro at 30
September 2014, +41,5%), thanks largely to the considerable amounts collected
during the period and the reduction in debt collection times compared to initial
estimates.
The Governance and Services segment posted 166,8 million Euro, compared to 66,6
million Euro at 30 September 2014 (+150,6%). The gain on the previously
mentioned rearrangement of the government bond portfolio contributed to this
result. This was partly offset by the ensuing decline in margins following the
rearrangement of said portfolio. The profitability of the sector benefits of the
lower retail funding costs-the result of a planned reduction in funding and
interest rates. The trend is expected to climb slightly upward because of the
new 3-, 4- and 5-year maturities recently launched on the market.
In the third quarter, net banking income stood at 62,4 million Euro, compared to
67,8 million Euro in the third quarter of 2014 (-7,9%). Trade receivables
contributed 41,7 million Euro (vs. 37,4 million Euro, +11,3%), the DRL segment
contributed 10,4 million Euro (vs. 7,1 million Euro, +47,1%), tax receivables
contributed 4,0 million Euro (vs. 3,8 million Euro, +5,8%), and the Governance
and Services segment contributed 6,4 million Euro compared to 19,5 million Euro
in the prior-year period (-67,4%).
Net impairment losses totalled 22,1 million Euro. 13,9 million Euro referred to
loans to customers (compared to 29,7 million Euro at 30 September 2014, -53,3%),
and 8,2 million Euro to available for sale financial assets. Concerning net
impairment losses on receivables, the consistently downward trend is
attributable to the monitoring of how the counterparty's risk profile evolves.
All along, the Bank has maintained a rigorous and consistent policy for
assessing borrowers' creditworthiness. The decrease in impairment losses
resulted in a significant improvement in the ratio of credit risk cost
concerning trade receivables to the relevant average loan balance over the last
12 months, down to 79 bps from 231 bps at 30 September 2014.
The bad-loan ratio in the trade receivables segment was unchanged from 1,3% at
31 December 2014.
The bad-loan coverage ratio of the trade receivables segment was 86,7%, up from
86,4% at 31 December 2014.
The rest of "Net impairment losses" refers to 8,2 million Euro in impairment
losses on two unlisted equity securities.
The Group's net profit from financial activities was 305,0 million Euro (181,0
million Euro net of the mentioned rearrangement of the government bond
portfolio), compared to 181,1 at 30 September 2014 (68,4%).
The net profit from financial activities in the Trade Receivables segment rose
21,1% to 104,2 million Euro compared to 86,0 million Euro in the prior-year
period, largely because of the improved credit quality; the DRL segment stood at
30,9 million Euro, compared to 20,3 million at 30 September 2014 (+52,2%), due
to the new collection methods introduced in the DRL segment by the CrediFamiglia
brand; the Tax Receivables segment stood at 11,4 million Euro, compared to 8,3
million at 30 September 2014, up 37,9% for the reasons already explained in the
"net banking income" section. Finally, net profit from financial activities in
the Governance and Services segment, excluding the impact of the mentioned
rearrangement of the government bond portfolio, fell 48,1% to 34,6 million Euro,
compared to 66,6 million Euro in the prior-year period.
In the third quarter, net profit from financial activities totalled 57,2 million
Euro (compared to 59,3 million Euro in the third quarter of 2014, -3,5%). Trade
receivables contributed 40,4 million Euro (+35,2% compared to 29,9 million Euro
in the third quarter of 2014); the DRL segment 10,7 million Euro (+79,2%
compared to 6,0 million Euro in the prior-year period); tax receivables 3,8
million Euro (-2,9% compared to 4,0 million Euro in the third quarter of 2014);
and the Governance and Services segment totalled 2,4 million Euro, compared to
19,5 million Euro in the third quarter of 2014 (-88,0%).
At 30 September 2015, operating costs were up 15,9%, from 69,7 million Euro in
the first nine months of 2014 to 80,8 million Euro. At 36,1 million Euro,
personnel expenses rose 14,4% (31,5 million Euro in 2014) due to new hiring:
140 new staff were added in the first nine months of 2015, up 57,3% compared to
the same period in 2014. This was consistent with the goal to strengthen some
areas and services supporting the business and the scenario in which the Group
operates. At 30 September 2015, the Group's employees numbered 707.
Other administrative expenses totalled 43,4 million Euro, up 22,9% from 35,3
million Euro at 30 September 2014, largely because of higher business volumes in
the DRL segment. The relevant costs for collecting debts and gathering
information on clients (7,1 and 3,4 million Euro, respectively) are included in
this item of the income statement. Also consulting fees rose due to the re-
engineering of business processes and the internal control system. This was
necessary to comply with new prudential regulations for banks concerning the
internal control and IT system as well as business continuity.
The cost/income ratio stood at 24,7% at 30 September 2015 (39,8% excluding the
gain on the rearrangement of the government bond portfolio from net banking
income), compared to 33,1% at 30 September 2014.
Pre-tax profit for the period stood at 224,2 million Euro, compared to 111,4
million Euro at 30 September 2014.
Income tax expense amounted to 75,4 million Euro, compared to 37,2 million Euro
at 30 September 2014. The Group's tax rate rose to 33,6% at 30 September 2015
from 33,4% at 30 September 2014.
Profit for the period totalled 148,8 million Euro, compared to 74,2 million Euro
at 30 September 2014 (up 100,6%).
The corresponding figure for the third quarter was 18,0 million Euro (24,1
million Euro in the prior-year period).
Consolidated Statement of Financial Position analysis
The Group's assets, amounting to 7.244,7 million Euro at 30 September 2015
(8.309,3 million Euro at 31 December 2014), mainly consist of loans to customers
and available for sale financial assets.
Total loans to customers reached 3.176,2 million Euro, up 12,9% from 2.814,3
million Euro at the end of 2014. Specifically, at 30 September 2015 trade
receivables reached 2.658,7 million Euro, up 203,7 million Euro from the end of
2014 (+8,3%). Receivables due from Italy's Public Administration at 30 September
2015 accounted for 31,0% of total receivables in the segment, compared to 27,1%
at 31 December 2014, while receivables due from the private sector accounted for
69,0% (compared to 72,9% at 31 December 2014). Distressed retail loans rose
126,5 million Euro (+93,4%) to 261,9 million Euro, bringing the par value of
receivables under management to 7.486,7 million Euro, largely thanks to the
several acquisitions of portfolios made during the period. Tax receivables were
down 5,6 million Euro to 113,9 million Euro (-4,7%), largely because the Group
received payments on two significant exposures during the period. However, it
should be noted that the receivables managed by the Tax Receivables sector
totalled 130,0 million Euro (+8,8% compared to 31 December 2014), as they
include also a 16,1 million Euro position classified under "receivables due from
banks" because of the counterparty that originated the receivable. As for the
Governance and Services segment, loans to customers were up 37,3 million Euro to
141,7 million Euro (+35,7%), largely due to margin lending with Cassa
Compensazione e Garanzia (CCG) related to repurchase agreements in government
bonds on the MTS platform.
With regard to activities in support of SMEs, the loans duration was confirmed
as short-term, in line with the Group's strategy to support working capital. On
average, it takes 3 months to collect receivables due from private sectors
entities and approximately 4 months for those due from the Public
Administration.
Total net non-performing exposures, also due to the recent acquisitions in the
DRL segment, amounted to 396,7 million Euro at 30 September 2015, compared to
248,1 million Euro at the end of 2014 (+59,9%).
Net non-performing exposures in the trade receivables segment, which actually
determine the Bank's overall credit quality, rose 19,7% from 112,6 million Euro
at the end of 2014 to 134,8 million Euro. Net non-performing exposures accounted
for 5,1% of all trade receivables (4,6% at 31 December 2014) and totalled 24,2%
(25,7% in December 2014) as a proportion of the Group's equity.
Here below is the breakdown of the Group's net non-performing exposures in the
trade receivables segment alone:
· At 30 September 2015, net bad loans amounted to 34,6 million Euro, compared to
33,0 million Euro in December 2014; the segment's net bad-loan ratio was 1,3%,
unchanged from 31 December 2014;
· The balance of net unlikely to pay, the category including loans previously
recognised as subjective substandard and restructured loans, was 42,5 million
Euro at 30 September 2015, compared to 43,8 million Euro at 31 December 2014 (-
2,8%). The decline was largely attributable to the improved coverage ratio,
rising from 24,5% at 31 December 2014 to 27,1% at 30 September 2015, thanks to
the Bank's rigorous assessment policy;
· Net past due exposures, which, according to the definition of the Bank of
Italy, include also objective substandard loans in addition to exposures already
classified as past due, amounted to 57,7 million Euro at 30 September 2015,
compared to 35,8 million Euro in December 2014 (+61,1%). The increase was
largely attributable to the addition of some individually significant positions
to this category. Changes in non-performing past due exposures are a normal part
of the Bank's business model. Net past due exposures referred for 1,9 million
Euro (3,9 million Euro at the end of 2014) to receivables due from the Public
Administration purchased outright as part of financing operations.
Available for sale (AFS) financial assets, which include debt and equity
securities, stood at 3.677,9 million Euro at 30 September 2015, compared to
243,3 million Euro at the end of 2014 (+1.411%). This was largely attributable
to the rearrangement of the government bond portfolio completed in April 2015.
The relevant valuation reserve, net of taxes, was positive to the tune of 8,4
million Euro at 30 September 2015 (6,0 million Euro at 31 December 2014).
At 30 September 2015, receivables due from banks totalled 247,0 million Euro,
compared to 274,9 million Euro at 31 December 2014 (-10,1%). This item includes
some securities not listed on an active market with banking counterparties,
totalling 5,0 million Euro (-54,5% compared to 31 December 2014), and treasury
loans with other lenders, amounting to 225,9 million Euro (-14,4% compared to
31 December 2014), largely related to maintaining excess liquidity in the
system. There are also 16,1 million Euro in receivables referring to the Tax
Receivables sector, classified under this item because they are due from a
counterparty that originated the receivable.
Funding, net of the rendimax savings account and the contomax current account,
shall be analysed in a comprehensive manner based on market trends; it consists
of wholesale funding through repurchase agreements (mostly classified under
payables due to customers, as they are carried out with counterparties formally
other than banks), refinancing transactions on the Eurosystem, and short-term
treasury transactions with other lenders. Total funding, which amounted to
6.438,4 million Euro at 30 September 2015, down 16,8% compared to 31 December
2014, is represented for 91,6% by Payables due to customers (compared to 70,8%
at 31 December 2014) and for 8,4% by Payables due to banks (compared to 29,2% at
31 December 2014).
Payables due to customers at 30 September 2015 totalled 5.900,5 million Euro
(+7,6% compared to 31 December 2014). This increase was mainly due to the higher
use of repurchase agreements with underlying government bonds and Cassa di
Compensazione e Garanzia as counterparty, amounting to 2.840,5 million Euro
(compared to 2.082,9 million Euro at the end of 2014). Retail funding totalled
2.947,4 million Euro at 30 September 2015, including 2.884,7 from rendimax and
62,7 million Euro from contomax, compared to 3.314,2 million Euro at 31 December
2014, as interest rates slid gradually throughout the year. The Bank still bears
proportional stamp duty costs on rendimax and contomax, which amount to 0,20%.
Payables due to banks, amounting to 537,9 million Euro (compared to 2.259,0
million Euro at 31 December 2014, -76,2%), mainly consisted of 390,4 million
Euro in funding from repurchase agreement transactions with underlying
government bonds and 119,7 million Euro from refinancing operations on the
Eurosystem (-94,6% from 2.226,9 million Euro at 31 December 2014). The latter
amount referred entirely to the TLTRO loan received in December 2014 at a fixed
0,15% rate and maturing on 26 September 2018. The remainder of payables due to
banks consists of interbank deposits, including 5,0 million Euro on the E-Mid
platform. The significant decrease in Payables due to banks compared to the end
of the previous year was due to the fact that the Bank carried out less
refinancing operations on the Eurosystem, rather using the MTS platform and
dealing with Cassa di Compensazione e Garanzia as counterparty. The Bank turns
to the ECB or the MTS platform exclusively based on which is more convenient in
light of interest rate trends.
At 30 September 2015, consolidated Equity was 557,0 million Euro, compared to
437,8 million Euro at 31 December 2014 (+27,2%).
As for capital adequacy ratios, the Total Own Funds Capital Ratio was 16,02%
(14,21% at 31 December 2014) and the Common Equity Tier 1 (CET1) 15,34% (13,89%
at 31 December 2014).
Outlook
The outlook for Europe's economy remains uncertain, with production projected to
rise only moderately. Italy could stand out from the crowd by growing at a
nearly 1% rate in 2015: if confirmed, this would represent a positive
breakthrough after a protracted period weakness.
The international scenario is characterized by the concerns over a slowdown in
China, which could negatively affect other countries, and by the difficulties
that Emerging Markets are facing, dealing with particularly weak oil and
commodity prices as well as unfavourable exchange rate movements.
In the reference European countries, the cost of money is still at record lows
due to the ECB's monetary policy and extremely limited price change. The low or
zero inflation rate is the result of the trend in commodity prices and, more
generally, the relatively scant use of the factors of production. Monetary
policy measures are expected to gradually bring back inflation to the
Authorities' target, even though the chances of it achieving a value near but
below 2% appear remote.
It does not appear possible to leave the crisis behind without restarting the
flow of credit to the real economy. In this context, Banca IFIS's ability to
provide support to small and medium-sized businesses - also thanks to
strengthening capital adequacy ratios and increasing liquidity - continues
representing a competitive advantage, enabling it to acquire new customers and
loans. The market is still characterised by the limited - albeit growing -
supply of credit and the demand for appropriate solutions - especially for
companies that are small in size and have less measurable or low credit
standing. Over the last few quarters, the Bank has started to overhaul its
distribution network, hiring new staff and renewing its organisation in order to
better meet the needs of tomorrow. This is expected to result in further
increases in the number of financed SMEs, lending volumes and overall
profitability in the second half of 2016.
In this scenario, Banca IFIS looks forward to continued strong performance by
all business areas for the end of 2015 and the year 2016.
The Bank can play an increasingly important role in the Distressed Retail Loans
segment, providing solutions in demand at lenders and financial institutions
across Italy. We will continue monitoring and bidding for the portfolios of
receivables due from households that originators are expected to place on the
market. Banca IFIS recently introduced organisational and operating solutions
for managing NPLs that allow to expect increasing collection rates. Considering
the abundant liquidity on the market, with portfolios often traded at
significantly different prices based on their quality; the Bank's ability to
turn the quality of the portfolios into a strength in dealings with debtors; and
the opportunity to scale up operating volumes, benefiting the bank and the
debtors involved in its initiatives, Banca IFIS will consider carrying out
secondary market transactions. Specifically, Banca IFIS may sell already
processed portfolios with the goal of freeing up resources, using them to
further expand the business, or buy portfolios that other players already
started processing.
As for tax receivables, the Bank is consolidating its leadership in this
segment, given the good medium-term profitability of these investments.
The Governance and Services segment improved its profitability thanks to lower
retail funding costs-the result of a planned reduction in funding and interest
rates. The trend is expected to climb slightly upward because of the new 3-, 4-
and 5-year maturities recently launched on the market.
In the fourth quarter, the Bank will also incur the disbursements related to the
new deposit guarantee scheme and bank resolution mechanism, as well as the
amendments introduced by European Legislator, pending their transposition into
Italian law.
As for government bonds in the portfolio, based on the evidence and the current
monetary policy, the Bank believes it will continue refinancing said portfolio
at interest rates around or below zero, at least for the next quarters.
In this scenario, and considering the current dynamics in terms of potential
margins from investments in government bonds, the Bank deems its position as
appropriate. The Bank may look at potential opportunities in the event market
conditions turn favourable.
Finally, the Bank will continue considering further opportunities on the
segments it operates in as well as new related markets or those potentially
interesting in light of its growth strategies.
In light of the above, the Group can reasonably expect to remain profitable also
in the last quarter of 2015 and throughout 2016.
Significant subsequent events
There were no other significant events after the reporting date and up to the
approval of this consolidated interim report at 30 September 2015.
Declaration of the Corporate Accounting Reporting Officer
Pursuant to Article 154 bis, Paragraph 2 of the Consolidated Law on Finance, the
Corporate Accounting Reporting Officer, Emanuel Nalli, declares that the
accounting information contained in this press release corresponds to the
company's accounting records, books and entries.
Banca IFIS: 9 months 2015 results:
http://hugin.info/143833/R/1961683/715353.pdf
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Source: Banca IFIS S.p.A. via GlobeNewswire
[HUG#1961683]
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Datum: 27.10.2015 - 12:25 Uhr
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