Morningstar DBRS Changes Trends on Mediocredito Centrale - Banca del Mezzogiorno S.p.A. to Positive Following Sovereign Rating Action

DBRS Ratings GmbH (Morningstar DBRS) changed the trends on the Long-Term and Short-Term Issuer Ratings of Mediocredito Centrale - Banca del Mezzogiorno S.p.A. (MCC or the Bank) to Positive from Stable. At the same time, Morningstar DBRS confirmed all the Bank's credit ratings, including its Long-Term Issuer Rating at BBB and Short-Term Issuer Rating at R-2 (high). MCC's Long-Term Deposits are rated BBB (high), one notch above the Bank's Long-Term Issuer Rating, reflecting the legal framework in place in Italy, which has full depositor preference in bank insolvency and resolution proceedings. The Bank's Support Assessment is SA1. A full list of credit rating actions is included at the end of this press release.

KEY CREDIT RATING CONSIDERATIONS
The trend changes to Positive from Stable follow Morningstar DBRS' credit rating action on the Republic of Italy (Italy). On 25 October 2024, Morningstar DBRS confirmed Italy's Long-Term Foreign and Local Currency - Issuer Ratings at BBB (high) and changed the trend on those ratings to Positive from Stable. (For more details on the rationale for the sovereign credit rating action, please refer to the press release -- https://dbrs.morningstar.com/research/441774 -- "Morningstar DBRS Changes Trends on Republic of Italy to Positive, Confirms Ratings at BBB (high)".

MCC's credit ratings reflect a Support Assessment of SA1, which implies the expectation of predictable support from its shareholder, Agenzia nazionale per l'attrazione degli investimenti e lo sviluppo d'impresa S.p.A. (Invitalia), which is, in turn, fully owned by the Italian government. The Bank's Long-Term Issuer Rating is one notch below Italy's Long-Term Foreign and Local Currency - Issuer Ratings, reflecting that, despite the expectation of predictable support, there is no government guarantee nor explicit commitment to maintain the Bank's capitalisation. Nevertheless, Morningstar DBRS expects support to MCC from the Italian State to be forthcoming in case of need as a result of the Bank's ownership and its strategic public mission. Morningstar DBRS also notes that, because of its ownership and the expectation of support, MCC's credit ratings are positioned multiple notches above the entity's intrinsic creditworthiness.

CREDIT RATING DRIVERS
An upgrade of the Republic of Italy's credit ratings would likely lead to an upgrade of MCC's credit ratings. An upgrade of MCC's Long-Term Issuer Rating could also be driven by an explicit guarantee and commitment of support to the Bank from the Italian government.

A downgrade of MCC's credit ratings would result from a downgrade of Italy's sovereign credit rating or a material deterioration in the Bank's earnings power, risk profile, and capital position. Any indication of a weakening of the commitment from the Italian government and/or a change of control in the Bank's ownership structure could also lead to a downgrade.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
Credit rating actions on the Republic of Italy are likely to have an impact on this credit rating. ESG factors that have a significant or relevant effect on the credit analysis of the Republic of Italy are discussed separately at
https://dbrs.morningstar.com/issuers/17689.

The Social and Governance factors impact MCC as the ESG factors for the Republic of Italy are passed-through to MCC given that the Bank's credit ratings or trend would move along with the credit ratings or trend of the sovereign (see credit rating drivers).

In addition, Morningstar DBRS considers the Governance factor as relevant to MCC's credit ratings at this point, in particular the subfactor "Corporate Governance", however, it does not affect the credit ratings or trend assigned to MCC. The Bank suffered financial and reputational damage as a result of conduct issues and mismanagement at BdM Banca S.p.A. prior to its acquisition by MCC.

There were no Environmental factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024) https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (4 June 2024) https://dbrs.morningstar.com/research/433881. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings https://dbrs.morningstar.com/research/437781 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies

The sources of information used for this credit rating include Morningstar, Inc. and company documents, MCC H1 2024 Results Press Release, MCC H1 2024 Report, and MCC Bylaws. Morningstar DBRS considers the information available to it for the purposes of providing this credit rating to be of satisfactory quality.

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

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are under regular surveillance.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://dbrs.morningstar.com/research/442494

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Andrea Costanzo, Vice President - European Financial Institution Ratings
Rating Committee Chair: Marcos Alvarez, Managing Director - Global Financial Institution Ratings
Initial Rating Date: 22 July 2024
Last Rating Date: 22 July 2024

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