DBRS Morningstar Confirms Banca Sella’s LT Issuer Rating at BBB (low), Trend Revised to Negative

DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings of Banca Sella Holding SpA (Sella or the Group) and its main operating subsidiary Banca Sella SpA (the Bank), including the Long-Term Issuer Ratings of BBB (low) and the Short-Term Issuer Ratings of R-2 (middle). The Bank’s Deposit ratings were confirmed at BBB/R-2 (high), one notch above the IA, reflecting the legal framework in place in Italy which has full depositor preference in bank insolvency and resolution proceedings. The trend on the Group’s long-term and short-term ratings has been revised to Negative from Stable. DBRS Morningstar has also maintained the Intrinsic Assessment for both entities at BBB (low) and the Support Assessment at SA3 for Banca Sella Holding SpA and SA1 for Banca Sella SpA. The SA1 reflects Banca Sella SpA’s strong integration with the parent and its 79.18% ownership by Banca Sella Holding SpA. As a result, DBRS rates Banca Sella SpA and Banca Sella Holding SpA at the same level. A full list of rating actions is included at the end of this press release.

KEY RATING CONSIDERATIONS

The change of the Trend to Negative reflects our view that the wide and growing scale of economic and market disruption resulting from the coronavirus (Covid-19) pandemic will put additional pressure on the Bank’s profitability and balance sheet. The deteriorating operating environment in Italy will likely affect the Bank’s revenues, asset quality and cost of risk. The impact will likely emerge in the coming quarters, whilst the implications for the medium to long-term will depend on the evolution of the outbreak. Downward rating pressure would intensify should the crisis be prolonged.

We will continue to monitor the performance of the Bank’s asset quality and earnings, as well as the measures being taken to support its franchise and customer base, including the implementation of the debt moratoriums. At the same time, we will assess the impact of unprecedented support measures announced by the Italian government, as well as several other international authorities and central banks.

The confirmation of the ratings takes into account the Group’s improved asset quality profile, evidenced by the lower stock of non-performing exposures (NPEs). Nevertheless, we do expect some pressure on the Bank’ risk profile, albeit mitigated by the Italian government and the European authorities’ support measures.

The ratings incorporate Sella’s stable market position in retail and commercial banking in its home region of Piedmont, as well as a diversified business profile. The Group benefits from growing private banking, asset management, and digital banking, as well as its solid market position in the payment system business. The ratings also continue to reflect Sella’s modest profitability, which could experience further strain if the epidemic and subsequent lockdown were prolonged. In particular, the sharp falls in stock markets will weigh on capital market revenues and fees from asset management. In addition, any initiative to improve the Group’s modest efficiency levels may prove challenging at this time.

The Bank has a solid funding and liquidity position, and whilst we do not see short-term downside risk on funding given the measures put in place by the ECB, we believe that smaller institutions like Sella could experience difficulties in accessing wholesale funding markets. The Group’s capital position remains at the lower-end of its domestic peer group, which could pose challenges in the current environment

RATING DRIVERS

Any upgrade is unlikely in the short-term given the recent change of trend. However, the trend on the Long-Term ratings could revert to Stable if the Bank were able to demonstrate limited earnings and asset quality impact from the global coronavirus pandemic.

A downgrade would likely be driven by a significant deterioration of the Bank’s profitability, especially fees on which the bank is very reliant, as well as pressure on capital levels as a result of the global coronavirus pandemic.

ESG CONSIDERATIONS

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792

The Grid Summary Grades for Banca Sella Holding SpA are as follows: Franchise Strength – Good/Moderate; Earnings – Moderate/Weak; Risk Profile – Moderate; Funding & Liquidity – Good; Capitalisation – Moderate.

DBRS Morningstar notes that this press release was amended on May 11, 2020, to incorporate the rating table below for Banca Sella Holding SpA.

Notes:
All figures are in EUR unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (11 June 2019) https://www.dbrsmorningstar.com/research/346375/global-methodology-for-rating-banks-and-banking-organisations

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883

The sources of information used for this rating include Company Documents, Sella 1H 2019 Report, Sella 2019 Press Release, and S&P Global Market Intelligence. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS Morningstar 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 12-month period. DBRS Morningstar's outlooks and ratings are under regular surveillance.

For further information on DBRS Morningstar 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

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/359169

Ratings assigned by DBRS Ratings GmbH are subject to EU and U.S. regulations only.

Lead Analyst: Arnaud Journois, Vice President – Global Financial Institutions Group
Rating Committee Chair: Elisabeth Rudman, Managing Director, Head of European FIG - Global FIG
Initial Rating Date: July 7, 2014
Last Rating Date: May 14, 2019

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Tel. +49 (69) 8088 3500
60311 Frankfurt am Main Deutschland
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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