INTESA SANPAOLO S.P.A.
Fitch Ratings has affirmed
The Outlook on the Long-Term IDR is Stable.
A full list of rating actions is detailed below.
Key Rating Drivers
Leading Domestic Franchise: IntesaSP's ratings reflect its leading domestic franchise and pricing power in
IntesaSP's capitalisation is sound, including capital buffers above regulatory minimum requirements, and benefits from reduced encumbrance by unreserved impaired loans, as the bank continues to reduce its impaired loans. The ratings are also underpinned by the bank's sound funding and liquidity profile.
Business Diversification: IntesaSP's ratings reflect its leading franchise in
We expect the weakened operating environment in
Sound Risk Management Framework: IntesaSP's tighter loan underwriting in recent years has effectively reduced credit risk and contained new inflows of impaired loans. Risk controls are robust and have been swiftly adapted to changing operating environments. We expect the combination of these elements to prevent large risk-taking and mitigate risks from a weaker operating environment in 2023.
Reduced Domestic Sovereign Exposure: In 9M22 sovereign debt exposure in the banking book decreased materially to about 64% of common equity Tier 1 (CET1) capital at
Contained Asset-Quality Deterioration Expected: The impact of the energy crisis and inflationary pressures on asset quality has been negligible to date. In 2022 inflows of new impaired loans fell further from the previous year and the bank continued to reduce its impaired loans through effective workout and portfolio sales.
We expect IntesaSP to operate with an impaired loans ratio below 4% and the potential impact of a deteriorating operating environment in 2023 to be manageable. The bank is winding down its Russian exposure, which further mitigates risks to its asset quality.
Profitability Upside Remains: IntesaSP's operating profitability has been resilient to changes in the market and economic environments due to diversified revenues, good operating efficiency and contained recurring loan impairment charges (LICs), which should drive its operating profit/risk-weighted assets (RWA) at around 2% in 2022. We see potential for the bank to generate robust and sustainable profits over the rating horizon with an operating profit/RWA maintained at or above 2022 levels as we expect the slowdown in the Italian economy to be short-lived.
Sound Capitalisation: IntesaSP's regulatory capital ratios have satisfactory buffers over minimum requirement of 8.9%, one of the lowest among large western European banks, despite a moderate reduction in 2022 mainly due to capital distribution to shareholders. We expect IntesaSP will continue to manage its CET1 ratio to meet its medium-term target of above 12%, helped by its resilient earnings generation capacity. Risks from unreserved impaired loans and domestic sovereign debt exposure in the banking book have decreased materially in recent years, which mitigate capital's vulnerability to severe economic shocks.
Large Deposit Base, Diversified Wholesale Funding: IntesaSP's funding and liquidity benefit from ample and growing customer deposits, diversified wholesale funding sources and established institutional market access across various geographies and investor bases. The bank's market access has been resilient throughout the cycle.
Its deposit base has continued to outpace loan growth, resulting in a loans/customer deposits (as calculated by Fitch) of close to 100% and more comparable with international peers' than in the past. Its liquidity position is sound, supported by large investments in high-quality liquid securities and sizeable holdings of cash and deposits at the central bank.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
IntesaSP's ratings are likely to be downgraded if
The ratings could be downgraded if the bank's operating profitability falls below 1.5% of its RWAs for an extended period, especially if this results in the CET1 ratio falling substantially below the bank's target of at least 12% without prospects of recovery in the short term, and if the impaired loan ratio increases to levels well above 4% on a sustained basis.
The Short-Term IDR would be downgraded by one notch if our assessment of funding and liquidity is lowered from the current 'bbb+'
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Rating upside is limited and would require an upgrade of
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
DERIVATIVE COUNTERPARTY RATING (DCR)
IntesaSP's DCR is in line with the Long-Term IDR as derivative counterparties in
DEPOSITS
Long-term deposits are rated one notch above IntesaSP's Long-Term IDR to reflect full depositor preference in
The 'F2' short-term deposit rating is the baseline option for a 'BBB+' long-term deposit rating because the funding and liquidity score is not high enough to achieve a higher short-term rating.
SENIOR PREFERRED (SP) DEBT
SP debt is rated in line with IntesaSP's Long-Term IDR, reflecting our view that the default risk of the notes is equivalent to that of the bank as expressed by the IDR, and that SP obligations have average recovery prospects. This is based on our expectation that IntesaSP's resolution buffers under MREL will comprise both SP and more junior debt instruments, as well as equity. The rating also reflects our expectation that the combined buffer of additional Tier 1, Tier 2 and senior non-preferred (SNP) debt is unlikely to sustainably exceed 10% of the bank's RWAs.
SENIOR NON-PREFERRED (SNP) DEBT
SNP debt is rated one notch below the Long-Term IDR to reflect the risk of below-average recoveries arising from the use of more senior debt to meet resolution buffer requirements and the combined buffer of Additional Tier 1, Tier 2 and SNP debt being unlikely to exceed 10% of RWAs.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Subordinated debt and other hybrid capital securities issued by IntesaSP are notched down from its VR in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss-severity risk profiles.
IntesaSP's Tier 2 subordinated debt is rated two notches below the VR for loss severity to reflect below-average recovery prospects. No notching is applied for incremental non-performance risk because 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.
IntesaSP's Additional Tier 1 notes are rated four notches below the bank's VR, comprising two notches for loss severity relative to senior unsecured creditors and two notches for incremental non-performance risk. The latter reflects the instruments' fully discretionary interest payment. Our assessment is based on the bank operating with a CET1 ratio that is comfortably above maximum distributable amount (MDA) thresholds and our expectation that this will continue.
GOVERNMENT SUPPORT RATING (GSR)
IntesaSP's GSR of 'no support' (ns) reflects Fitch's view that senior creditors cannot expect to receive full extraordinary support from the sovereign if the bank becomes non-viable. This is due to the EU's Bank Recovery and Resolution Directive and the Single Resolution Mechanism for eurozone banks providing a framework for the resolution of banks that requires senior creditors participating in losses, if necessary, instead of, or ahead of, a bank receiving sovereign support.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
IntesaSP's DCR, long-term deposit, SP and SNP ratings are primarily sensitive to changes in the bank's Long-Term IDR, from which they are notched.
The deposit ratings could be downgraded by one notch, and be aligned with the IDRs, in the event of a reduction in the size of the senior and junior debt buffers that would result in a lower protection to deposits so that these would no longer have a lower probability of default relative to the IDRs. We view this unlikely in light of current and future MREL requirements.
IntesaSP's senior debt ratings could be upgraded if IntesaSP is expected to meet the resolution buffer requirements of the consolidated entity exclusively with SNP and more junior instruments, or if we expect resolution buffers represented by SNP and more junior instruments to be at least 10% of RWAs on a sustained basis, neither which is currently the case.
Intesa's subordinated debt's and hybrid securities' ratings are sensitive to changes in the bank's VR, from which they are notched. The ratings are also sensitive to a change in the notes' notching, which could arise if Fitch changes its assessment of their non-performance relative to the risk captured in the VR or their expected loss severity. For Additional Tier 1 issues, this could reflect a change in capital management or flexibility, or an unexpected shift in regulatory buffers and requirements, for example.
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.
The ratings of the SP debt issued by IntesaSP's funding vehicles,
The ratings of the SP debt issued by
VR ADJUSTMENTS
The business profile score of 'bbb+' is below the 'a' category implied score due to the following adjustment reason: business model (negative)
The asset quality score of 'bbb-' is above the 'bb' category implied score due to the following adjustment reason: historical and future metrics (positive)
The earnings and profitability score of 'bbb-' is above the 'bb' category implied score due to the following adjustment reason: revenue diversification (positive)
The capitalisation and leverage score of 'bbb' is above the 'bb' category implied score due to the following adjustment reason: internal capital generation and growth (positive) and regulatory capitalisation (positive)
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 MPS, 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, see www.fitchratings/esg.
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