DBRS Extends the Review of Creval’s Ratings

DBRS Ratings Limited (DBRS) has extended its review period on Credito Valtellinese SpA’s (Creval) Long-Term Issuer, Long-Term Senior Debt and Long-Term Deposits ratings of BB. These ratings remain under review with Negative Implications (URN). Concurrently, the Bank’s Short-Term Issuer Rating was confirmed at R-4 with a stable trend. A full list of ratings actions is included at the end of this press release.

The extension of the review period takes into account the Bank’s pending recapitalisation. As part of its 2018-20 Strategic Plan announced on November 7, 2017, Creval is in the process of launching a rights issue of up to EUR 700 million. The capital strengthening is critical to improve the Bank’s risk profile as well as its future profitability prospects.

In YE 2017 Creval reported a net loss of EUR 332 million which was broadly in line with the loss reported in the previous year. The loss was mainly driven by an increase in cost of risk in Q2 and Q3 due to the disposal of an NPE portfolio of EUR 1.4 billion, as well as the adoption of more conservative credit policies as set out under the new business plan. In Q4 the Bank reported net income of EUR 71 million.

Creval’s gross NPE ratio improved to 21.7% (or 13.2% net of provisions) at YE 2017 from 27.3% (or 18.1%) at YE 2016. For 2018, the Bank expects to improve its gross and net NPE ratios to 10.5% and 5.5%, respectively, mainly via disposals. The improvement in asset quality is expected to be supported by the capital increase. At YE 2017, Creval reported a CET1 ratio, phased-in, of 10.6% from 9.4% at end-September 2017 and 11.8% at YE 2016.

The capital increase, which was approved by an extraordinary shareholders meeting on December 19, 2017, is targeted for completion by the end of 1Q18. The transaction is currently supported by a pre-underwriting agreement with twelve leading investment banks. In addition, Creval’s main shareholder, Mr Denis Dumont, who currently holds approximately 5% of the Bank’s share capital via DGFD S.A., expressed his intention to support the Bank’s capital plan. Despite these recent developments, execution risks remain significant considering the size of the transaction which is approximately six times the Bank’s current market capitalisation, based on market data as of February 8, 2018.

During the review period, which is expected to be resolved within the next 60 days, DBRS will continue to monitor any developments in the Bank’s restructuring plan and recapitalisation, including the final conditions of the rights issue to be set by the Board of Directors, regulatory approvals, as well as the final underwriting agreement and prospectus. Investor sentiment and market conditions will also be monitored during this period.

RATING DRIVERS
Positive rating pressure is unlikely, given the ratings are currently Under Review with Negative Implications. However, a successful rights issue could lead to a stabilisation of the ratings at the current level. The ratings could be downgraded should Creval be unsuccessful in executing the current capital plan.
Notes:
All figures are in Euros unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (May 2017). This can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include company reports. DBRS considers the information available to it for the purposes of providing this rating to be 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.

This rating is under review. Generally, the conditions that lead to the assignment of reviews are resolved within a 90 day period. DBRS reviews and ratings are under regular surveillance.

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“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 and US regulations only.

Lead Analyst: Nicola De Caro, Vice President – Global FIG
Rating Committee Chair: Elisabeth Rudman, Managing Director, Head of EU FIG - Global FIG
Initial Rating Date: February 7, 2013
Most Recent Rating Update: November 15, 2017

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