(Repeat for additional subscribers)
April 4 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Mediocredito Trentino
Alto Adige S.p.A.'s (MTAA) Long- and Short-term Issuer Default Ratings (IDRs) at
'BBB+' and 'F2' respectively. The agency has also affirmed the bank's Viability
Rating (VR) at 'bb-' and its Support Rating (SR) at '2'. The Outlook is
KEY RATING DRIVERS - IDRS and SR
MTAA's IDRs and SR are based on Fitch's expectation that support for MTAA, if
needed, will highly likely be provided, on a timely basis, by its main
shareholders, the Autonomous Province of Trento (A/Negative/F1), the Autonomous
Province of Bolzano (A/Negative/F1) and the Region of Trentino Alto Adige, which
jointly hold a 52.5% stake in the bank.
Fitch believes that the public shareholders have the ability to provide
sufficient support in funding, liquidity or capital for MTAA, if needed, given
their high financial flexibility. This is reflected in their ratings being two
notches above Italy's and the bank's small balance-sheet size compared with that
of its public shareholders.
MTAA's Long-term IDR is notched two levels down from its main shareholders'
Long-term IDRs to reflect our view of MTAA's strategic importance given its
role in supporting the local economy and the high reputational risk to the
majority shareholders should they not support the bank. At the same time, the
two-notch rating differential reflects the presence of minority shareholders and
its limited integration within its main shareholders, which is the result of
MTAA operating as a regulated bank.
The propensity to support is further underpinned by the presence of a
shareholders' pact between the largest shareholders, which Fitch believes will
be renewed in its current terms when it expires on 24 April 2014. This pact,
albeit not legally binding, includes provisions to provide funds to MTAA if
needed. Moreover, the shareholders have provided support in the form of funding
in the past, which in the agency's opinion demonstrates their ability and
propensity to promptly intervene, if needed.
MTAA continues to perform an important role for the public sector in its home
region. The provinces consider MTAA as a vehicle for executing their economic
policies. The bank's sharp reduction of new loans extended in 2012 and 2013
reflects lower credit demand and tighter underwriting standards but Fitch
believes MTAA will remain a key institution for the funding of the local
corporate sector's investments.
MTAA's franchise and commercial presence also benefit from close links with the
local mutual banking sector (Banche di Credito Cooperativo; BCC sector) which
holds 36.6% of MTAA's capital. MTAA provides products and services, typically
medium- to longer-term loans, to the BCCs' clients.
The Negative Outlook mirrors those on the shareholders' ratings as well as the
Negative Outlook on Italy's sovereign rating.
RATING SENSITIVITIES - IDRS AND SR
MTAA's IDRs and SR are sensitive to changes in Fitch's assumptions regarding the
ability or propensity of its main shareholders to provide support.
A downgrade of the provinces would result in a downgrade of MTAA's IDRs and put
pressure on the SR.
The SR and IDRs are also sensitive to a change in the strategic importance of
MTAA and would come under pressure if the bank's ownership structure changes or
if we believe that the probability of timely support from its public sector
shareholders decreases because of possible state aid considerations. As MTAA
operates as a bank in Italy, its IDR is capped at the sovereign rating and is
therefore sensitive to a downgrade of Italy.
KEY RATING DRIVERS - VR
MTAA's VR primarily reflects the bank's weak asset quality and profitability,
which Fitch does not expect to improve at least until over the medium term. It
also reflects MTAA's dependence on wholesale funding, partly mitigated by access
to liquidity from its shareholders, and tight capitalisation.
MTAA is a small bank that provides long-term lending to the corporate sector.
Asset quality has been deteriorating because of the weakness in the economic
environment. Although the deterioration slowed down in 2013, gross impaired
loans have risen to represent a high 14.8% of gross loans at end-2013. Loan
impairment coverage of impaired loans has risen but remains low at about 30%,
and renders the bank vulnerable to further falls in asset values. Further loan
impairment charges are likely to be put through in 2014.
MTAA's operating profitability continued to decline in 2013 mainly because of
high loan impairment charges. Fitch believes profitability will remain weak in
2014 as improvements in the domestic economy are likely to be gradual. MTAA's
earnings sources are not diversified as medium and long-term lending remains the
bank's main business and net interest income dominates revenues.
The bank relies on wholesale funding, which accounted for about 90% of
non-equity funding at end-2013. Fitch believes that its EUR270m of bonds
maturing in 2014 could put upward pressure on funding costs.
Fitch expects that the bank's shareholders would provide ordinary support to
underpin liquidity if needed. This could take the form of deposits or purchase
of bonds issued by MTAA, directly or through the provinces' subsidiaries, which
include Cassa del Trentino (A/Negative/F1), the financing arm of the Autonomous
Province of Trento.
Fitch views the bank's capitalisation as tight given its small size and weak
asset quality, despite reporting a Fitch Core Capital/risk-weighted assets ratio
of 15.7% at end-2013.
RATING SENSITIVITIES - VR
MTAA's VR is sensitive to a more rapid deterioration in asset quality than
planned, particularly if additional loan impairment charges put further pressure
on capital adequacy. A material improvement in asset quality and profitability
would result in MTAA's VR being upgraded.
The VR is also sensitive to changes in the bank's liquidity. A reduced ability
to access funding from the BCC or from its public sector shareholders,
materially challenging the bank's funding structure and costs, would put the VR