(Alliance News) - Italian banks face the European Central Bank's expansive monetary policy with two priorities: to position themselves in the banking resiko, dominated by UniCredit Spa's OPS on Banco BPM Spa, and to compensate for the decline in net interest income caused by falling rates by focusing on asset management.

As Milano Finanza writes Friday, Mirko Sanna of S&P Global Ratings predicts solid fundamentals and clean balance sheets for Italian institutions, despite sovereign-limited ratings.

Profitability should remain high, with an average ROE above 14 percent, but he expects credit quality to deteriorate slightly, especially for SMEs, without significant impact.

The banking system is polarizing between large structured groups-with strong digitalization and bancassurance-and fintech, with less room for intermediate players such as Banca Monte dei Paschi di Siena Spa, BPER Banca Spa, and Banca Popolare di Sondrio Spa.

The second driver will be the transformation of savings into investments. Intesa Sanpaolo Spa leads with EUR1.5 trillion in assets while an eventual success of the UniCredit-BPM-Anima Holding Spa deal would bring the new giant to EUR1.2 trillion.

With rates falling, wealth management fees will rise, pushing clients from deposits to asset management.

S&P estimates a 6-7% decline in net interest income, higher than banks forecast, and predicts a possible increase in the cost of risk. However, institutions with a strong managed component will be better able to cope with the decline in margins through revenue diversification.

By Giuseppe Fabio Ciccomascolo, Alliance News senior reporter

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