BPER BANCA S.P.A.
Fitch Ratings has revised
A full list of rating actions is below.
The Outlook revision reflects our expectation that its integration of
The rating action also considers BPER's sound record of integrating new entities in recent years, its declining stock of impaired loans, which we expect to continue due to its planned sale of
Fitch has withdrawn BPER's Support Rating of '5' and Support Rating Floor of 'No Floor' as they are no longer relevant to the agency's coverage following the publication of its updated Bank Rating Criteria on
Key Rating Drivers
The ratings also reflect adequate capitalisation and the material improvement in asset quality through de-risking to levels close to the domestic peer average, resulting in reduced capital encumbrance by unreserved impaired loans.
Consistent Strategy, Proven Record: BPER's strategy is consistent with its traditional commercial banking business model. We believe that targets are ambitious but achievable, unless the operating environment deteriorates more than we currently expect. Our assessment also acknowledges BPER's record of achieving stated targets and delivering inorganic growth, which should mitigate residual integration risk from Carige's acquisition.
Moderate Risk Profile: BPER's risk profile is commensurate with its business model. Risk-taking and control processes are aligned to market standards. Market risk appetite is in line with other mid-sized domestic peers', including a large appetite for Italian sovereign bond holdings, which accounted for close to 1.3x common equity Tier 1 (CET1) capital at end-1Q22.
Further Acceleration in De-risking: We have improved our asset-quality assessment to reflect the significant reduction in impaired loans over past five years, and our expectation that the bank will further reduce impaired loans to below 3% of gross loans by end-2022 and around 3.5% over the medium term. This is because we expect the
Diversified Core Revenue: BPER's revenue profile is adequately diversified with fees and commissions contributing on average above 40% to total operating income over the past five years, which compares well with that of most diversified banks in
In coming quarters, we expect the bank's revenue generation to gradually benefit from higher interest rates and strong fee growth due to the deployment of the bank's wealth management and bancassurance activities on an enlarged client base. This should more than offset the impact of an expected increase in default rates, and lead to an improvement in operating profit towards 1% of risk-weighted assets (RWAs) by end-2023.
Adequate Capitalisation: The bank's CET1 ratio of 14.1% at end-1Q22 provides ample buffers over the regulatory requirement of 8.3%. Capital encumbrance by unreserved impaired loans of 22% at end-1Q22 has materially improved on previous years (69% at end-2018), but remains above stronger domestic peers' and international standards. We expect it to decline to below 10% after the
Sound Funding and Liquidity: Our assessment of BPER's funding and liquidity considers an ample and growing customer deposit base and an adequately diversified funding profile, although access to wholesale channels, particularly for unsecured debt issues, is less frequent than for larger and higher-rated domestic peers. Liquidity is adequate, owing to ample cash balances redeposited at the
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
BPER's ratings are vulnerable to a significant weakening of the operating environment in
The Outlook may be revised to Stable if progress on the integration of IntesaSP's branches and Carige and improvement in core profitability do not materialise as swiftly as expected.
The ratings would likely be downgraded if the impaired loans ratio increases above 6% and operating profit falls below 0.5% of RWAs on a sustained basis, especially if the CET1 ratio falls below 13% without the prospect of recovery in the short term, and capital encumbrance by unreserved impaired loans rises on a sustained basis.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of BPER's ratings would require a completion of planned impaired loan disposals resulting in a gross impaired loans ratio sustainably below 4% and operating profit/RWA to improve structurally to at least 1.5% without an increase in its risk profile. This is provided capital levels remain adequate, including a CET1 ratio of at least 13% and CET1 capital encumbrance by unreserved impaired loans at below 15% in the medium term.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
BPER's long-term deposit rating is one notch above its Long-Term IDR because we believe the bank has sufficient combined buffers of junior and senior debt, resulting in a lower probability of default on deposits relative to its Long-Term IDR. The one-notch uplift also reflects our expectation that the bank will maintain sufficient buffers to comply with minimum requirement for own funds and eligible liabilities (MREL).
BPER's short-term deposit rating of 'F3' is the only option for a 'BBB-' long-term deposit rating.
BPER's senior preferred (SP) debt is rated in line with the bank's Long-Term IDR because we expect them to use SP debt to meet its MREL.
The subordinated debt of BPER is notched down twice from its Viability Rating (VR) for loss severity to reflect poor recovery prospect in a resolution. No notching is applied for incremental non-performance risk because a write-down of the notes will only occur once the point of non-viability is reached, and there is no coupon flexibility before non-viability.
No Support: BPER's GSR of 'ns' reflects Fitch's view that although external extraordinary sovereign support is possible, it cannot be relied on. Senior creditors can no longer expect to receive full extraordinary support from the sovereign in the event that the bank becomes non-viable. This is because the EU's Bank Recovery and Resolution Directive and the Single Resolution Mechanism for eurozone banks provide a framework for resolving banks that requires senior creditors participating in losses, if necessary, instead or ahead of a bank receiving sovereign support.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The SP debt and deposit ratings are primarily sensitive to changes in the bank's Long-Term IDR, and would be downgraded if the Long-Term IDR is downgraded. The deposit ratings could also be downgraded by one notch, and be aligned with the IDRs, in the event of a reduction in the senior and junior debt buffers to levels that no longer comply with current and future MREL.
The subordinated debt rating is primarily sensitive to changes in the bank's VR, from which it is notched, and would be downgraded if the VR is downgraded. The rating is also sensitive to a change in the notes' notching, which could arise if Fitch changes its assessment of their non-performance risk relative to that captured in the VR.
The SP debt and deposit ratings would be upgraded if the Long-Term IDR is upgraded.
The SP debt rating could also be upgraded by one notch if at some point BPER is expected to meet its resolution buffer requirements with senior non-preferred debt and more junior instruments only.
The rating of Tier 2 debt is primarily sensitive to changes in the bank's VR, from which it is notched.
An upgrade of the GSR would be contingent on a positive change in the sovereign's propensity to support the bank. In Fitch's view, this is highly unlikely, although not impossible.
VR ADJUSTMENTS
The capitalisation and leverage score of 'bb+' is below the 'bbb' category implied score due to the following adjustment reason: internal capital generation and growth (negative).
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
RATING ACTIONS
Entity / Debt
Rating
Prior
LT IDR
BB+
Affirmed
BB+
ST IDR
B
Affirmed
B
Viability
bb+
Affirmed
bb+
Support
WD
Withdrawn
5
Support Floor
WD
Withdrawn
NF
Government Support
ns
New Rating
subordinated
LT
BB-
Affirmed
BB-
long-term deposits
LT
BBB-
Affirmed
BBB-
Senior preferred
LT
BB+
Affirmed
BB+
short-term deposits
ST
F3
Affirmed
F3
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VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
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