BFF Bank: Likely Reduction in Capital Buffers After Regulator’s Probe but Mitigating Levers Exist

The commentary analyses the potential implications for BFF Bank (BFF or the Bank) due to some findings emerged as a result of a recent inspection from the Bank of Italy (BoI).

Key highlights from the commentary include:

-- On May 9, 2024, BFF informed the market that it had received some findings from the BoI regarding the classification of its credit exposures to public administrations as well as the Bank's governance and its corporate compensation practices.
-- This has resulted in a temporary ban for the Bank mostly concerning dividend distributions, the payment of the variable remuneration, and business expansion abroad.
-- Subject to the BoI’s final decision envisaged later this year, we expect the finding to have a potentially significant negative impact on BFF’s capitalisation.

“While a reduction in BFF’s capital buffers is expected after the regulator’s probe, we note that the Bank is equipped with levers to mitigate the likely negative impact, mainly including the possibility to bring on balance some of its off-balance profit reserves,” said Andrea Costanzo, Vice President from the Morningstar DBRS European Financial Institution Ratings team. “In our view, the temporary ban imposed by the regulator will provide some support from a credit perspective until a final decision is taken as it ensures capital protection during an uncertain phase”.