Banca Sistema (BST) H2 2024 earnings summary

Executive summary

• Bank of Italy's inspection led to stricter loan classification, governance changes, and required reclassification of past due loans, reducing exposures from €372m in 1H24 to €256m in 4Q24.

• Net profit rose 53% year-over-year to €25.2 million, or 20% y/y excluding an €8 million writeback, driven by strong core revenue and commission growth.

• Operational performance showed a decisive recovery in revenues and profitability, with strong growth in core business lines.

• Capital ratios remained above SREP requirements after reclassification, with CET1 at 13.3% and Total Capital at 16.1% at year-end.

• Actions are underway to address regulatory findings, including a three-year capital plan and potential board changes.

Financial highlights

• Adjusted net interest income grew 18% y/y to €82.9 million; fees/commissions increased 36% y/y to €26.7 million.

• Total gross income rose 17% y/y to €121.2 million, led by factoring, SME guaranteed loans, and pawn loans.

• Group profit reached €25.2 million, or €19.8 million on an adjusted basis, excluding an €8 million writeback.

• Factoring division net profit was €38.3 million (adjusted: €33 million); CQ division posted a €15.3 million loss; pawn-broking contributed €3.2 million.

• Operating costs rose 7% y/y to €78 million, mainly due to higher personnel expenses and one-off administrative costs.

Outlook and guidance

• Uncertainty remains regarding the timing and amount of cash-in from the European Court of Human Rights ruling, which could significantly impact capital and profitability.

• CQ division expected to improve as legacy low-yield portfolio expires in 2025, with focus shifting to higher-rate new business.

• Anticipated regulatory changes from EBA guidelines on default definition and calendar provisioning to be applied from 1Q25.

• Cost of funding is trending down, which may support future profitability, especially in the CQ business.

• Risk management actions and potential collections from court judgments could further strengthen capital.