UniCredit Updated Loan-Loss Provision Guidance in Line With Our Expectations but Ahead of Consensus

No-moat UniCredit updated the market that it now anticipates to book loan-loss provisions equal to 1%-1.2% of its lending book for fiscal 2020 and it anticipates a credit loss ratio of 0.7%-0.9% during 2021. Currently we estimate a credit loss ratio of 1% for 2020 and 0.8% for 2021, which falls within the ranges provided. The estimated consensus, collected by Visible Alpha, credit loss ratios of 0.8% for 2020 and 0.7% for 2021 seems optimistic. Forward-looking reserving, in line with the expected loss methodology introduced by the accounting standard IFRS 9, accounts for the bulk of the increase, and UniCredit indicated it anticipates actual defaults on loans only to pick up in second-half 2020 when the moratorium on loan repayments falls away. UniCredit uses a 13% decline in European gross domestic product for 2020, followed by a 10% rebound in 2021 as inputs in its loan-loss provisioning models.