Morningstar DBRS Assigns AA (low) Credit Rating to Banca Nazionale del Lavoro S.p.A. Covered Bonds (OBG - Mortgages) Series 24

DBRS Ratings GmbH (Morningstar DBRS) assigned a AA (low) credit rating to the Series 24 Obbligazioni Bancarie Garantite (OBG; the Italian legislative covered bonds) (ISIN IT0005661704) issued under the Banca Nazionale del Lavoro S.p.A. (BNL or the Issuer) Covered Bond Programme (the Programme). All covered bonds (CBs) issued under the Programme rank pari passu with each other and Morningstar DBRS currently rates them AA (low).

Series 24 is a EUR 1.9 billion floating-rate bond paying a coupon of 3-months Euribor plus 0.413% and maturing on 28 July 2029.

As of the date of this credit rating action, there were five series of OBG under the Programme, totalling an outstanding nominal amount of EUR 13.6 billion. The series are guaranteed by Vela OBG S.r.l.

CREDIT RATING RATIONALE
The credit ratings reflect the following analytical considerations:

-- A Covered Bonds Attachment Point (CBAP) of AA (low), which is one notch above the long-term issuer rating of Banca Nazionale del Lavoro S.p.A. (BNL). BNL is the Issuer and the reference entity (RE) for the programme. There is no Critical Obligations Rating associated with the RE, but Morningstar DBRS classifies Italy as a jurisdiction for which covered bonds (CB) are a particularly important financing tool.
-- A Legal and Structuring Framework (LSF) Assessment of "Adequate" associated with the Programme.
-- No Cover Pool Credit Assessment (CPCA) assigned, in line with the level of overcollateralisation (OC) we give credit to.
-- An LSF-L of AA (low).
-- No uplift for recovery prospects.
-- A level of overcollateralisation (OC) of 5.0% to which Morningstar DBRS gives credit, which is the OC level considered to be sustainable based on information from the Issuer. The minimum level of OC observed over the past 12 months was 22.9%, in March 2025.
-- The sovereign rating on the Republic of Italy, rated BBB (high) with a Positive trend by Morningstar DBRS, as of the date of this rating action.

Morningstar DBRS analysed the transaction with its European Covered Bond Cash Flow tool. The main assumptions focused on the timing of defaults and recoveries of the assets, interest rate stresses, and market value spreads to calculate liquidation values on the CP. Morningstar DBRS assumed observed prepayment rate for the analysis.

Everything else being equal, a downgrade of the CBAP by one notch would lead to a downgrade of the LSF-L by one notch, resulting in a downgrade of the CB rating by one notch.

BNL acts as the account bank for this transaction. Based on its rating and on the replacement provisions included in the documentation, Morningstar DBRS considers the risk of such counterparty to be consistent with the credit ratings assigned, in accordance with its "Legal and Derivative Criteria for European Structured Finance Transactions" and "Global Methodology for Rating and Monitoring Covered Bonds".

BNL also acts as the cover pool (CP) swap counterparty. However, the swap documentation is not in line with Morningstar DBRS' "Legal and Derivative Criteria for European Structured Finance Transactions", and consequently, Morningstar DBRS did not give credit to the swaps in its analysis.

The total outstanding amount of OBG is currently EUR 13.6 billion. As of 31 March 2025, the total outstanding amount of OBG was 11.7 billion and the CP was composed of EUR 13.0 billion of residential (93.3% of the loan balance), commercial (6.0%), and public sector (0.7%) mortgages plus EUR 455 million of cash, resulting in a total OC of 22.9%. If we were to consider the current outstanding amount of OBG, the total OC would round 6% (not accounting for further pool assignments after 31 March 2025).

The weighted-average (WA) current loan-to-value ratio of the mortgages was 46.4% with an average seasoning of 6.2 years as of 31 March 2025. The assets securing the loans in the CP were mainly located in the Italian regions of Lazio (22.8% of the loan balance) and Lombardy (16.7%).

The CP comprised fixed-for-life loans (92.3% by outstanding balance) and floating-rate loans (7.7%). The floating-rate mortgage loans are indexed to different plain-vanilla indices and reset at different dates. By comparison, 100% of the liabilities pay a floating rate linked to three-month Euribor. Morningstar DBRS considered the resulting interest and basis risks as unhedged in its cash flow analysis.

All CP assets and OBG are denominated in euros. As such, investors are not currently exposed to any foreign-exchange risk.

The weighted-average life (WAL) of the CP was 8.8 years as of 31 March 2025, whereas the WAL of the OBG is currently 2.5 years, considering the expected maturities. The resulting asset-liability maturity mismatch is mitigated by the 12-month maturity extension and by the OC.

Morningstar DBRS assessed the LSF related to the Programme as "Adequate", according to its rating methodology. For more information, please refer to the DBRS Morningstar commentary "Italian Obbligazioni Bancarie Garantite Legal and Structuring Framework" available at https://www.dbrsmorningstar.com.

Morningstar DBRS' credit rating on Series 24 addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related interest payment amounts and the related principal balance.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

Credit rating actions on the Issuer are likely to have an impact on this credit rating.

There were no Environmental/Social/Governance factor(s) 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 at https://dbrs.morningstar.com/research/454196 (16 May 2025).

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit rating is: Global Methodology for Rating and Monitoring Covered Bonds (9 July 2025) https://dbrs.morningstar.com/research/458008

Other methodologies referenced in this transaction are listed at the end of this press release.

In Morningstar DBRS' opinion, the change(s) under consideration do not require the application of the entire principal methodology. Therefore, Morningstar DBRS focused on the cash flow analysis.

A review of the transaction legal documents was limited to the documentation pertaining to the issuance of Series 24. All the other documents have remained unchanged since the most recent rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit ratings, please refer to "Appendix C: The Impact of Sovereign Credit Ratings on Other Morningstar DBRS Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://dbrs.morningstar.com/research/457952.

The sources of data and information used for this credit rating include historical performance data (static pool default data from 2009 to 2024 for the residential pool and from 2000 to 2019 for the commercial pool; dynamic pool delinquency data from 2012 to 2024 and prepayments data from 2010 to 2024) as well as loan-level and stratification information on the CP as of 31 March 2025 provided by the Issuer, and servicer reports until June 2025 provided by the Issuer.

Morningstar DBRS did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial credit rating, Morningstar DBRS was not supplied with third-party assessments. However, this did not affect the credit rating analysis.

Morningstar DBRS considers the data and information available to it for the purposes of providing this credit rating to be of satisfactory quality.

Morningstar DBRS does not audit or independently verify the data or information it receives in connection with the credit rating process.

This credit rating concerns a newly issued financial instrument. This is the first Morningstar DBRS credit rating on this financial instrument.

The last credit rating action on this transaction took place on 28 January 2025, when Morningstar DBRS assigned a AA (low) rating to Series 24 issued under the Programme.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com.

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.

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

Lead Analyst: Tomas Rodriguez-Vigil Junco, Senior Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 16 December 2019

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

-- Global Methodology for Rating and Monitoring Covered Bonds (9 July 2025),
https://dbrs.morningstar.com/research/458008.
-- European RMBS Insight Methodology (8 May 2025),
https://dbrs.morningstar.com/research/453613 and European RMBS Insight model v 10.1.0.1.
-- Global Methodology for Rating CLOs and Corporate CDOs (9 July 2025) and Public Sector Exposure Model v.0.2.1,
https://dbrs.morningstar.com/research/458009.
-- Rating CLOs Backed by Loans to European SMEs (5 July 2025) and SME Diversity Model version 2.7.1.6,
https://dbrs.morningstar.com/research/455697.
-- Global Methodology for Rating Banks and Banking Organisations (23 May 2025),
https://dbrs.morningstar.com/research/454637.
-- Legal and Derivative Criteria for European Structured Finance Transactions (19 November 2024),
https://dbrs.morningstar.com/research/443196.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024),
https://dbrs.morningstar.com/research/439913.
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024),
https://dbrs.morningstar.com/research/439571.
-- Global Methodology for Rating Sovereign Governments (9 July 2025),
https://dbrs.morningstar.com/research/457952.
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025),
https://dbrs.morningstar.com/research/454196.

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/439604.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at [email protected].