In an economic context with moderate growth, the Intesa Sanpaolo Group ended 20161 with a net profit of 3.1 billion (+13.6%) recorded in the income statement. This performance was achieved despite considerable expenses paid by the Group relative to banking system stability, comprising ordinary, extraordinary and additional contributions to resolution funds and deposit protection and guarantee schemes, as well as value adjustments of related investments, which overall totalled 820 million (559 million net of taxes). Value adjustments for credit risk went up considerably compared to 2015 (+402 million), due to an increase in hedging. A capital gain of 881 million from the disposal of Setefi and Intesa Sanpaolo Card was also recorded for the year.
Specifically, net operating income amounted to 16.9 billion, down by 1.5% compared to 2015 figures, mainly due to the decrease in net interest and, to a lesser extent, in net commission, and to basically stable results in the insurance segment as well as a better performance in trading and increase in other net operating income. Operating expenses fell slightly compared to the previous year, thanks to effective cost-cutting actions. In relation to the above trends, the operating result fell by 2.3%. Particularly prudent credit adjustments along with an increase in the hedging of non-performing loans, net provisions for risks and value adjustments for other assets decreasing overall and profit on assets held for sale increased gross profit on continuing operations by 8.3%.
As for regulatory capital, customer loans increased (+5% compared to the end of 2015 at 365 billion) as well as direct deposits, in both the banking segment (+5.8% to 394 billion) and insurance (+8.4%, to 144 billion). Indirect deposits were close to 469 billion (basically stable compared to the end of 2015), affected by the downwards trend of share prices that devalued stocks of assets under management and custody. Specifically, assets under management recorded an increase (+11.6 billion), while assets under custody recorded a decrease (-11.1 billion) due to a heightened market volatility.
The persisting headwinds in the macroeconomic environment and the financial markets’ volatility require constant control of the factors enabling the Group to pursue sustainable profitability: high liquidity, funding capacity, low leverage, adequate capital base and prudent asset valuations.
Group liquidity remained high: as at 31 December 2016, both regulatory indicators envisaged by Basel 3 (LCR and NSFR), and adopted as internal liquidity risk measurement metrics, reached a level well above fully phased-in requirements. At the end of the year, Central Banks eligible liquidity reserves came to 150 billion euro (117 billion at the end of December 2015), of which 96 billion, net of the haircut, was unencumbered (78 billion at the end of December 2015). The loan to deposit ratio at the end of 2016, calculated as the ratio of loans to customers to direct deposits from banking business, came to 93%.
In terms of funding, the widespread branch network remains a stable, reliable source: 73% of direct deposits from the banking business come from retail operations (289 billion euro). During the year, over 1.5 billion USD of Tier 2 subordinated bonds, 1.25 billion euro of Additional Tier 1 and 1.25 billion euro of guaranteed bank bonds were placed on the wholesale international market. With particular reference to Additional Tier 1 instruments, a further 1.25 billion euro were placed in January 2017. In June 2016, the Group participated in the first TLTRO II operation for approximately 36 billion euro (against a maximum that may be requested of approximately 57 billion euro) after the repayment in full of the TLTRO I, outstanding at 27.6 billion euro. In September, the Group participated in the second TLTRO II operation for approximately 5 billion euro and in December, it participated in the third operation for 3.5 billion euro. As at 31 December 2016, the Group's participation in the refinancing programme therefore amounted to approximately 45 billion euro.
Intesa Sanpaolo Group leverage (6.3% as at 31 December 2016) remained at top levels recorded in the sector.
The capital base was also high. At the end of December, the total capital ratio stood at 17.0%; the ratio of the Group’s tier 1 capital to its total risk-weighted assets (tier 1 ratio) was 13.9%. The ratio of Common Equity Tier 1 (CET1) to risk-weighted assets (Common Equity Tier 1 ratio) stood at 12.7%.
1 Comments refer to reclassified data published in the 2016 Consolidated Financial Statements of the Intesa Sanpaolo Group. Annual percent changes were calculated based on restated 2015 figures, where necessary, to take into account variations in the scope of consolidation. Amounts are in millions of euro. For additional details or information, see the 2016 Consolidated Financial Statements of the Intesa Sanpaolo Group.