DBRS Confirms Intesa SanPaolo Rating at A (low), Stable Trend

DBRS Ratings Limited (DBRS) has today confirmed the ratings of Intesa SanPaolo SpA (Intesa, the Bank or the Group), including its Senior Long-Term Debt and Deposit Rating at A (low) and a Short Term Debt and Deposit Rating at R-1 (low). The trend on all ratings remains Stable.

Concurrently, DBRS confirmed the Bank’s Intrinsic Assessment (IA) at A (low) and the support assessment of SA3, which reflects DBRS’ view that developments in European regulation and legislation mean that there is less certainty about the likelihood of timely systemic support. As a result, the Bank’s final ratings are positioned in line with its IA.

The rating confirmation reflects the strength of Intesa’s Italian franchise, the diversity and depth of the Group’s customer base and its broad product offerings. Together these support Intesa’s leading position in the Italian banking market. The IA also reflects the Group’s improved revenue generation mix, as well as Intesa’s solid liquidity and capital position. Conversely, the IA considers the Bank’s large stock of impaired loans, which constrains Intesa’s earnings capacity.

DBRS views the Bank’s improved performance under its strategic plan for 2014-2017 favorably, but the trend remains Stable in line with that of the Italian sovereign (Italy: rated A (low) with a Stable trend). Nonetheless, positive rating implications could develop with further improvement in the Bank’s asset quality if accompanied by an improvement in DBRS’ rating for Italy. Negative rating pressure could result should Italy’s rating be downgraded, or if Intesa’s financial fundamentals and franchise were to deteriorate. Moreover, a meaningful deterioration in Intesa’s Corporate & Investment Bank (C&IB) lending book could also put negative pressure on the ratings.

In DBRS’ view, Intesa maintains a solid competitive position domestically, and is well positioned to capture new growth opportunities both in Italy and abroad. The Bank’s profitability improved in 2014 and 2015 on the back of higher fee income, as well as lower credit costs. The Bank has maintained its growth momentum in fee generation and this helps to confirm Intesa’s progress towards business model diversification and de-risking. Concurrently, cost of credit has improved as asset quality deterioration has slowed down. Nevertheless, ongoing pressure on net interest margin, and still high cost of credit continue to weigh on the Bank’s overall profitability.

For DBRS, improvement in asset quality remains the main challenge for Intesa over the medium term. The Bank’s stock of impaired lending increased to 17% of total gross loans at September 2015. More positively, the deterioration has been at a slower pace, as the Bank recorded the lowest inflow of new impaired loans since 2007. In addition, the Bank maintains adequate provisioning levels. At September 2015, Intesa reported total coverage and coverage for bad debts at 47% and 63%, respectively, which are well above the average for the Italian peers and in line with many European peers.

From a funding prospective, Intesa maintains a solid funding profile which is underpinned by the Bank’s solid retail funding base, as well as its consistent access to the wholesale funding markets. With EUR 77 billion in total unencumbered assets at September 2015, the Bank has a sizable liquidity buffer for future bond maturities.

In DBRS’ view, the Bank’s capital position remains solid. At September 2015, Intesa reported a Common Equity Tier 1 (CET 1) ratio of 13.4% (both on a fully loaded and transitional basis), which compares favorably with the average for the Italian and European peers. This also provides a significant buffer over the 9.5% minimum threshold set by the ECB under the SREP process.

Notes:
All figures are in EUR unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (June 2015). Other applicable methodologies include the DBRS Criteria: Support Assessments for Banks and Banking Organisations (March 2015) and DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (February 2015). These can be found can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include Company’s reports and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance.

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Nicola De Caro
Rating Committee Chair: Roger Lister
Initial Rating Date: September 19, 2013
Most Recent Rating Update: April 2, 2015

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