BANCA IFIS S.P.A.
Fitch Ratings has affirmed
A full list of rating actions is below.
Fitch has withdrawn IFIS's Support Rating of '5' and Support Rating Floor of 'No Floor' as they are no longer relevant to the agency's coverage following the publication of its updated Bank Rating Criteria on
Key Rating Drivers
IFIS's Long-Term-IDR is driven by its VR. Its 'B' Short-Term IDR is the only option mapping to its 'BB+' Long-Term IDR.
The ratings also reflect sound capitalisation, a higher impaired loan ratio than domestic averages, and stable funding and liquidity.
Capitalisation a Rating Strength: IFIS's common equity Tier 1 (CET1) ratio of about 15.4% at end-2021 is sound and has ample buffers over its Supervisory Review and Evaluation Process (SREP) requirement of 8.12%. While capitalisation remains at risk from IFIS's large exposure to Italian sovereign debt, which accounted for about 140% of CET1 capital at end-2021, capital encumbrance by unreserved impaired loans (excluding purchased or originated credit-impaired loans, (POCIs)) has gradually decreased to a modest 14% of CET1 capital.
Improved Asset Quality: The bank's impaired loan ratio (excluding POCIs) has materially improved over the past four years to below 7%, but still lagged the industry average of 5% at end-2021. The improvement mainly mirrors the bank's overall moderate risk profile that is reliant on the short-term factoring business and the above-average recovery rate of the leasing business. We deem the quality of the NPL business adequate, given its consistent profitability underpinned by robust underwriting and collection performance.
Achievable Asset-Quality Targets: We view the bank's organic impaired loan target of 5.7% (excluding POCIs) by 2024 as realistic. Small impaired loan disposals will continue and will compensate for asset- quality pressures from the indirect effects of the Russian/
Core Business Lines Sustain Revenue: Operating profit recovered to nearly 1.6% of risk-weighted assets (RWAs) in 2021 (from 0.4% in 2020), due to core revenue growth that more than compensated the lower contribution from purchase price allocation (PPA) on former Interbanca's loans (which has almost ceased), and lower loan impairment charges (LICs) in the lending business.
Conservative Provisioning Approach: LICs (excluding recoveries on POCIs) decreased 15% yoy in 2021 as the bank frontloaded provisions related to pandemic risks in the previous year. LICs remained high at 89bp of average gross loans despite lower NPL inflows as the bank maintained a prudent provisioning policy in light of risks posed by the withdrawal of government-support measures in 2Q22.
We expect the bank to maintain high coverage ratios ahead of asset-quality deterioration resulting from the Russian/
Stable Funding and Liquidity: Funding and liquidity are underpinned by stable customer deposits. Funding diversification is commensurate with the bank's profile, with less established access to wholesale markets than larger banks' and less certain funding access during periods of market stress. The bank's utilisation of central-bank facilities is more opportunistic to support its net interest income than for actual liquidity needs.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The ratings could be downgraded if IFIS increases its risk appetite, for example, due to a loosening of underwriting standards to pursue business growth, leading to a material deterioration in its asset quality and causing operating profitability to weaken and significant capital erosion.
In particular, the ratings could be downgraded if the organic impaired loans ratio (excluding POCIs) structurally increases above 10%, operating profitability falls below 0.8% of RWA and the CET1 ratio falls below 14% without prospects of a reversal in the short term.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Given its specialised business profile, rating upside is currently limited. However, positive rating action would require a significantly broader and stronger franchise.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
The long-term deposit rating is one notch above IFIS's Long-Term IDR, reflecting depositor preference in
The short-term deposit rating of 'F3' is in line with the rating correspondence table for banks with a 'BBB-' long-term deposit rating.
Tier 2 debt is rated two notches below the VR for loss severity to reflect poor recovery prospects. No notching is applied for incremental non-performance risk because write-down of the notes will only occur once the point of non-viability is reached and there is no coupon flexibility before non-viability.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The long-term deposit rating would be downgraded if the Long-Term IDR is downgraded. It is also sensitive to a reduction in the buffers of senior and junior debt, if the bank fails to comply with its MREL.
The subordinated debt's rating is primarily sensitive to a downgrade of the VR, from which it is notched. The rating is also sensitive to an adverse change in the notes' notching, which could arise if Fitch changes its assessment of their non-performance relative to the risk captured in the VR.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The long-term deposit rating would be upgraded if the Long-Term IDR is upgraded.
The subordinated debt's rating is primarily sensitive to an upgrade of the VR, from which it is notched.
VR ADJUSTMENTS
The asset quality score of 'bb' is above the 'b & below' category implied score due to the following adjustment reason: loan classification policies.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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