An inquiry into the determinants of the profitability of Italian banks

Ugo Albertazzi, Alessandro Notarpietro and Stefano Siviero

No 364, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper examines the history and the determinants of bank profits in Italy from 2005-15. We first identify a number of key stylized facts by comparing the income statement of Italian lenders with that of banks in other European countries. The comparison suggests that the profitability gap of Italian banks is partly related to a business model characterized by a more conservative positioning along the risk-return frontier. We then use the Bank of Italy�s Quarterly Model of the Italian Economy to provide quantitative estimates of the impact of four factors (the economic activity growth rate, taxation of bank income, dynamics of operating costs and dividend policy) on profits, regulatory capital and bad debt. Our counterfactual simulations suggest that the weak growth of the Italian economy is responsible for a sizeable share of the profitability gap of Italian banks, being by far the main driver of the increase in bad debts in the last decade; nonetheless, the impact of the other factors on their profitability (and capitalization) is far from negligible.

Keywords: bank profits; bank capital; non-performing loans; Italian banks; Italian economy (search for similar items in EconPapers)
JEL-codes: E37 E44 E47 G21 (search for similar items in EconPapers)
Date: 2016-10
New Economics Papers: this item is included in nep-ban, nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_364_16

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