Intesa Sanpaolo Sees Benefit From Low Interest Rates

The chief executive of Italian lender Intesa Sanpaolo said there is "a lot of concern" about low and negative interest rates among European banks, but that the environment has helped Intesa lower its own cost of funding.

The bank, Italy's second-biggest by assets, said last week its net interest income—a measure of the profit earned on the difference between what a bank charges for loans and pays for deposits—rose slightly in the fourth quarter of last year from the third quarter.

Carlo Messina, the CEO, said in an interview that Intesa could see savings of between around €200 million ($226 million) and €300 million a year on the cost of its own borrowing over the medium term.

Low and negative rates are generally tough for banks, because they reduce the spread between loans and deposits—typically, banks have a hard time imposing negative rates on their own depositors. Intesa said its net interest income for all of 2015 fell 6.5% from the year before.

Nonetheless, it reported that net income more than doubled in 2015, thanks to higher fee income in its asset-management business and an improvement in the quality of its loans: It said its total nonperforming loans fell in the fourth quarter.

European bank shares have been battered this year by a welter of concerns, among them the pressure induced by near-zero rates. A European bank-stock index is off nearly a quarter in 2016, even after a 5% rise in midday trading Wednesday.

Intesa shares were up nearly 13%. It is Italy's largest bank by market value. Shares of the largest bank by assets, UniCredit SpA, were up 11%.

In the interview, Mr. Messina said concerns about bad loans and liquidity in the Italian banking system were overwrought.

Investors have pummeled a regional lender, Banca Monte dei Paschi di Siena SpA, which has long been troubled by concerns about its capital position and by bad loans. It is at the center of worries over how Italy will consolidate and clean up its banking sector, which is peppered with small and weak regional banks. Monte dei Paschi has been for sale for more than a year.

Although Intesa's own deposits from its banking business have risen (up €13 billion in the fourth quarter from the third), Mr. Messina said he saw no signs of a sustained flight from other banks. "There is not clear evidence of a problem with liquidity in the country," he said.

He said Intesa's stock of bad loans had improved thanks in part to higher household consumption in Italy, which gave firms more cash and increased their ability to pay.

Italian households are "coming back to consumption," he said.

Write to Charles Forelle at [e-mail]

(END) Dow Jones Newswires

February 10, 2016 09:45 ET (14:45 GMT)

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