UniCredit details impact of new terms for ECB's TLTRO funds

By Valentina Za and Federico Maccioni

MILAN (Reuters) -UniCredit said it expected a 400 million euro ($396 million) contribution from European Central Bank's longer-term funds this year under their new terms, while it no longer saw any potential benefits next year.

The ECB has moved to stop banks from booking a risk-free profit on these funds, known as Targeted Longer-term Refinancing Operations (TLTRO), as it keeps raising interest rates.

Last week it increased their cost in a bid to incentivise early repayments.

Italy's second-biggest bank, which had reported third-quarter results a day before the ECB set the new TLTRO terms, detailed their impact on its net interest income.

By factoring in the 400 million euro full-year boost UniCredit said it now expected a net interest income of more than 9.7 billion euros in 2022. The bank's guidance excludes its Russian business.

UniCredit last week had forecast a 2022 net interest income of more than 9.6 billion euros without taking into account the TLTRO effects. That improved the previous guidance of around 9.2 billion euros to reflect higher official rates.

Net interest income, or margin, measures how much a bank earns on loans net of deposit costs.

UniCredit has 106.8 billion euros in TLTRO funds and Mediobanca Securities analysts say it adopts the most conservative accounting methodology among euro zone banks for them, retroactively adjusting their contribution.

This accounting method led UniCredit to suffer a 313 million euro hit to its net interest margin in the third quarter.

For 2023, UniCredit stuck to a forecast of a net interest income of at least 10.1 billion euros, which excludes any TLTRO impact.

UniCredit had said that depending on the ECB's decision on the TLTRO terms it could have reaped an additional benefit of up to 1 billion euros on net interest income in 2023, a possibility it no longer envisages.

"There is no positive effect of TLTRO to UniCredit's financial results from 2023 onwards," it said.

UniCredit kept its 2023 guidance for an annualised boost to net interest income of around 500 million euros for every percentage point of increase in the ECB's deposit rate.

Shares in UniCredit rose more than 2.6% by 1450 GMT, outperforming a 1.4 rise in Italy's banking index. ($1 = 1.0059 euros)

(Editing by David Goodman and Jane Merriman)