Fitch Downgrades ICCREA Holding to 'BBB'; Negative Outlook

Mon Feb 3, 2014 12:13pm EST

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(The following statement was released by the rating agency) MILAN/LONDON, February 03 (Fitch) Fitch Ratings has downgraded ICCREA Holding's Long-term Issuer Default Rating (IDR) to 'BBB' from 'BBB+', Viability Rating (VR) to 'bbb' from 'bbb+' and Short-term IDR to 'F3' from 'F2'. Its Support Rating and Support Rating Floor (SRF) have been affirmed at '2' and 'BBB', respectively. The Outlook on the Long-term IDR is Negative. Fitch has also downgraded ICCREA Holding's two main subsidiaries, Iccrea Banca and Iccrea Banca Impresa (IBI). A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS - IDRS, VR AND SENIOR DEBT The downgrade of ICCREA Holding's VR reflects its deteriorated consolidated asset quality, which is only partially offset by its recently strengthened capitalisation. Gross impaired loans reached 15.4% of gross loans at end-1H13, and loan impairment allowance coverage of below 40% is low in absolute terms and relative to some domestic and international peers. Coverage relies on the value of collateral, often real estate related. ICCREA Holding had a Fitch core capital (FCC)/RWA ratio of 10.6% at end-June 2013 and capitalisation is being strengthened from the contribution of mutual sector banks. In 2013, ICCREA Holding raised EUR60m new capital and plans to increase its core capital further by another EUR40m by end-2015. As a result, its regulatory core Tier 1 ratio at end-9M13 reached 10.2% (end-2012: 9.3%). However, Fitch considers ICCREA Holding's capitalisation is still modest given deteriorated asset quality. Profitability has suffered from high loan impairment charges mainly reflecting troubled corporate loans, including a high proportion of leasing assets. Fitch expects the operating profitability of Italian banks to remain difficult in 2014. Loan impairment charges (LICs) will likely remain high, but below 2013 levels. ICCREA Holding's ratings continue to reflect the group's key role within the Italian mutual banking sector, for which it acts as the largest central institution. This means that in Fitch's opinion, ICCREA Holding and its main subsidiaries benefit from ordinary support from the member banks of the mutual banking sector. This includes benefits for ICCREA from the sector's strong franchise, but also from access to funding and capital from the sector's banks. ICCREA group's strategy reflects its role in the Italian mutual banking sector and addresses the provision of products and services to the Italian mutual banks mainly through IBI, which supplies corporate loans to the sector's clients, and Iccrea Banca, which primarily acts as the sector's main central institution. RATING SENSITIVITIES - IDRS, VR AND SENIOR DEBT ICCREA Holding's ratings are based on its instrumental role in the sector. Any weakening of its importance, which Fitch does not expect, would put pressure on its VR. ICCREA Holding and its subsidiaries benefit from sound liquidity, which is held up by the Italian mutual banks that place their excess liquidity with Iccrea Banca. Iccrea Banca also acts as an intermediary for the sector's banks to access ECB funding, which results in Iccrea Banca receiving long-term funding from the central bank, which it then passes to the sector banks. Any weakening of the bank's liquidity profile would put pressure on its VR. ICCREA Holding, Iccrea Banca and IBI's Long-term IDRs are currently based on ICCREA Holding's VR. However as the Long-term IDRs are at the same level as ICCREA Holding's SRF, a further downgrade of the VR would not result in a downgrade of the three entities' Long-term IDRs. The Negative Outlook on the Long-term IDR currently reflects pressure on ICCREA Holding's VR, given the bank's vulnerability to a weak domestic environment, and Fitch's view that a further downgrade of the sovereign rating would put pressure on its SRF. KEY RATING DRIVERS AND SENSITIVITIES - SUBSIDIARY AND AFFILIATED COMPANY The IDRs of ICCREA Holding's main subsidiary banks are equalised and are driven by the group's VR, which is based on an assessment of the consolidated group. This reflects Fitch's view that capital and funding within the ICCREA group are fungible, and changes to the IDR would affect all rated group entities. KEY RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR Fitch believes that the mutual banking sector, which has an aggregate market share of about 7% of loans in Italy, is of systemic importance domestically. ICCREA Holding's Support Rating and SRF reflect Fitch's view that there is a high probability that ICCREA Holding would receive support from the Italian authorities if needed. Additionally, Fitch believes that support for ICCREA Holding would be used to provide support for the sector banks if needed. The SRFs and SR are sensitive to changes in the government's propensity or ability to provide support. A downgrade of Italy's sovereign rating would put pressure on the SRFs as it would indicate the authorities' reduced ability to provide support. In a scenario where this ability reduced further, Fitch believes that Italian banks' SRFs could have a wider distribution, with the more regional banks' SRFs coming under more pressure than the SRFs of the largest Italian banks with strong domestic market shares. The SRs and SRFs are also sensitive to changes in Fitch's assumptions around the propensity of support, in light of the weakening of legal, regulatory, political and economic dynamics about potential future sovereign support for senior creditors of banks across jurisdictions, as indicated in "The Evolving Dynamics of Support for Banks" and "Bank Support: Likely Rating Paths", both dated 11 September 2013 at www.fitchratings.com. KEY RATING DRIVERS AND SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The subordinated debt and other hybrid capital issued by IBI is notched down from ICCREA Holding's VR in accordance with Fitch's criteria to reflect the different non-performance and relative loss severity risk profiles of these instruments. Their ratings are primarily sensitive to changes in the VR, which drives the ratings. The rating actions are as follows: Iccrea Holding S.p.A. Long-term IDR: downgraded to 'BBB' from 'BBB+'; Outlook Negative Short-term IDR: downgraded to 'F3' from 'F2' VR: downgraded to 'bbb' from 'bbb+' Support Rating: affirmed at '2' Support Rating Floor: affirmed at 'BBB' Iccrea Banca S.p.A. Long-term IDR: downgraded to 'BBB' from 'BBB+'; Outlook Negative Short-term IDR: downgraded to 'F3' from 'F2' Support Rating: affirmed at '2' EUR5bn EMTN Programme: downgraded to 'BBB'/'F3' from 'BBB+'/'F2' Senior unsecured debt: downgraded to 'BBB' from 'BBB+' Iccrea BancaImpresa Long-term IDR: downgraded to 'BBB' from 'BBB+'; Outlook Negative Short-term IDR: downgraded to 'F3' from 'F2' Support Rating: affirmed at '2' Senior unsecured debt and EMTN Programme: downgraded to 'BBB' from 'BBB+' Subordinated notes (ISIN XS0222800152 and XS0287519663): downgraded to 'BBB-' from 'BBB' Subordinated upper Tier 2 notes (ISIN XS0295539984): downgraded to 'BB' from 'BB+' Contact: Primary Analyst Francesca Vasciminno Senior Director +39 02 87 90 87 225 Fitch Italia S.p.A. V.lo Santa Maria alla Porta, 1 20123 Milan Secondary Analyst Manuela Banfi Associate Director +39 02 87 90 87 202 Committee Chairperson Claudia Nelson Senior Director +44 20 3530 1191 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria "Global Financial Institutions Rating Criteria" dated 31 January 2014, "Evaluating Corporate Governance" dated 12 December 2012, "Assessing and Rating Bank Subordinated and Hybrid Securities" dated 31 January 2014, and "Rating Criteria for Banking Structures Backed by Mutual Support Mechanisms" dated 20 December 2012 are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Evaluating Corporate Governance here Assessing and Rating Bank Subordinated and Hybrid Securities Criteria here Rating Criteria for Banking Structures Backed by Mutual Support Mechanisms here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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