UniCredit expects lower default rate of moratoria loans than initial projections

UniCredit SpA has granted €20.8 billion in state-guaranteed loan moratoria as of Feb. 11 and expects a roughly 5% default rate once guarantee schemes come to an end, lower than the 6% initially projected.

About three-quarters of UniCredit's state-guaranteed moratoria, put in place by governments to mitigate the impact of the COVID-19 pandemic, are in Italy. The majority of the Italian moratoria — where the government covers 87% of the risk — expire in June, but Group Chief Risk Officer Tj Lim said the bank had not ruled out a further extension.

"The bulk of the [Italian] moratoria will be expiring in the middle of this year," Lim told analysts during the bank's full-year 2020 earning, adding that it is too early to get a sense of default rates in Italy.

In other key markers for the bank, the default rate had been lower than initial projections, Lim said. Germany reported a roughly 2.6% default rate, with Austria's expected to be along the same lines.

UniCredit CFO Stefano Porro said stage 2 loans reached about 18% of the overall loanbook at the end of the fourth quarter, slightly higher compared to Italy, where 15% of loans are deemed stage 2.

At a group level, 68% of outstanding stage 2 loans are under moratoria. These loans are for the most part covered under provisions the lender set aside in 2020, Porro said.

Capital distribution

UniCredit's guidance for 2021 projects an underlying net income of €3 billion on the low end of the scale.

The bank said if its underlying profit is above €3 billion for the year it will propose a capital distribution of 50% of the amount, 30% of which will be in the form of cash and 20% in the form of a share buyback.

The lender said it will reveal more details about its strategy and the capital distribution after Andrea Orcel takes up the CEO role and will also delve more into the asset allocation side of its strategy then.