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Co-operative Society by shares - founded in 1871

Head office and general management: I - 23100 Sondrio So - Piazza Garibaldi 16

Registered in the Register of Companies of Sondrio at no. 00053810149

Registered in the Register of Banks under no. 842.

Parent Bank of the Banca Popolare di Sondrio Banking Group, registered in the Register of Banking Groups under no. 5696.0

Registered in the Register of Cooperative Societies under no. A160536

Member of the Interbank Deposit Protection Fund

Tax code and VAT number: 00053810149

Share Capital € 1,360,157,331 - Reserves € 1,253,388,214 (data approved by the Shareholders' Meeting of 11/5/2021

PRESS RELEASE

Banca Popolare di Sondrio:

Fitch Ratings confirms the long-term issuer default rating at "BB+";

outlook improved to "stable" from "negative".

Please note that today the credit rating agency Fitch Ratings, at the end of its annual review process, confirmed all the ratings assigned to Banca Popolare di Sondrio. The outlook at the same time was raised to "stable" from "negative".

Below are the details of the ratings assigned to the bank:

  • Long-termIssuer Default Rating ("IDR"): "BB+"
  • Short-termIssuer Default Rating ("IDR"): "B"
  • Viability Rating: "bb+"
  • Support rating: "5"
  • Support rating floor: "No Floor"
  • Long-termDeposit Rating: "BBB-"
  • Short-termDeposit Rating: "F3"
  • Senior Preferred Debt: "BB+"
  • Subordinated Tier 2 Debt: "BB-"
  • Outlook: "Stable"

The improved outlook reflects the rating agency's positive view regarding the mitigation of risks related to the pandemic, in particular relating to asset quality and the associated impact on the bank's profitability.

The press release issued by Fitch Ratings is attached.

Sondrio, 1st September 2021

BANCA POPOLARE DI SONDRIO SCPA

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Banca Popolare di Sondrio

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COMPANY CONTACTS:

Investor Relations

External Relations

Dott. Michele Minelli

Rag. Paolo Lorenzini

0342-528.745

0342-528.212

michele.minelli@popso.it

paolo.lorenzini@popso.it

The English translation is provided only for the benefit of the reader and in the case of discrepancies the Italian version shall prevail.

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Banca Popolare di Sondrio

01/09/2021

Fitch Revises Banca Popolare di Sondrio's Outlook to Stable; Affirms at 'BB+'

RATING ACTION COMMENTARY

Fitch Revises Banca Popolare di Sondrio's Outlook to Stable; Affrms at 'BB+'

Wed 01 Sep, 2021 - 12:11 ET

Fitch Ratings - Milan - 01 Sep 2021: Fitch Ratings has revised the Outlook on Banca Popolare di Sondrio's (Sondrio) Long-Term Issuer Default Rating (IDR) to Stable from Negative and affrmed the IDR at 'BB+' and Viability Rating (VR) at 'bb+'. A full list of rating actions is below.

The revision of the Outlook refects our view that the pandemic-related downside risks for the bank's asset quality and proftability have eased. Sondrio's performance in 1H21 and our medium-term expectations for its performance should provide some headroom to absorb moderate deterioration of its proftability and asset quality that may arise from the remaining pandemic-related risks to the economic recovery in Italy.

KEY RATING DRIVERS

IDRS, VR AND SENIOR PREFERRED DEBT

Sondrio's ratings refect its still weak asset quality and modest proftability. However, we expect that the bank's average risk appetite and its credible impaired loan strategy should mitigate asset quality pressure from the pandemic, and that proftability should beneft from loan impairment charges (LICs) remaining under control and strategic initiatives aimed at improving earnings generation.

The ratings also refect the bank's satisfactory regulatory capitalisation and our expectation that it will maintain capital ratios with ample buffers over requirements.

01/09/2021

Fitch Revises Banca Popolare di Sondrio's Outlook to Stable; Affirms at 'BB+'

Sondrio benefts from adequate franchises in its regions of operations, which results in a stable customer deposit base, underpinning a sound funding and liquidity profle.

Sondrio's asset quality is a rating weakness, with an impaired loan ratio of around 7% at end-June 2021, which is higher than the domestic industry average of around 6% and weak compared with international peers. The impaired loans reserve coverage ratio of over 62% at end-June 2021 is adequate for the bank's credit risks.

We expect Sondrio's impaired loan ratio to remain under control, even in case of a weaker-than-expected economic recovery in Italy, as the bank should be able to compensate possible asset quality deterioration once the government support measures gradually unwind through a combination of sales and effective workout. Furthermore, the bank's contained amount of loan moratoria at end-June 2021, at below 4% of gross performing loans, and better-than-expected performance of loan moratoria with limited default rates to date should mitigate near- to medium-term risks.

Sondrio's operating proftability is modest by international standards and compared with stronger domestic rated banks, despite good cost effciency. Its operating proft/risk-weighted assets (RWA) recovered to around 2.0% in 1H21 from 0.7% in 2020, due to re-established business activities, increased core revenue and the positive contribution of securities investments. In 1H21, LICs decreased by over 40% yoy (including 1H20 losses from the doubtful loans disposal). The benign impaired loan infows and improving macroeconomic scenario allowed for some releases of provisions in 1H21, which could continue in the coming quarters and sustain the bank's profts.

The improved 1H21 performance suggests that the bank is in a position to beneft from the economic recovery in Italy. We expect proftability to stabilise at around 1% of RWA in the medium term, benefting from higher business volumes if the economy rebounds in line with our current expectations, continuing use of the Targeted-Longer Term Refnancing Operations (TLTRO) facilities to mitigate pressure on the interest margin, a strategy aimed at expanding wealth management activities and ongoing cost effciency.

Sondrio's capitalisation is satisfactory, with a common equity Tier 1 (CET1) ratio of 16.7% at end-June 2021, sustained by acceptable earning generation and historically prudent dividend payouts, which allowed to maintain ample buffers over regulatory requirements. Capital encumbrance by unreserved impaired loans improved to below 28% at end-June 2021 from its peak of 74% at end-2016, and we expect it to remain under control, in line with our expectations on asset quality. However, capitalisation remains at risk from large exposure to Italian government bond holdings at about 240% of CET1 capital at end-June 2021.

01/09/2021

Fitch Revises Banca Popolare di Sondrio's Outlook to Stable; Affirms at 'BB+'

The bank's funding and liquidity profle is sound. Customer deposits are a stable source of funding, benefting from the bank's adequate franchise in its home regions and strong client relationships. Funding sources are increasingly diversifed through the bank's access to both secured and unsecured wholesale funding markets. Liquidity remains sound, thanks to adequate buffers of unencumbered eligible assets and access to ECB fnancing.

Sondrio's 'B' Short-Term IDR is the only option mapping to a 'BB+' Long-Term IDR.

Sondrio's long-term senior preferred notes are rated in line with the bank's Long-Term IDR. We expect the bank to use senior preferred debt to meet its minimum requirement for own funds and eligible liabilities. We also do not expect the bank to build up buffers of subordinated and senior non-preferred debt in excess of 10% of RWA, which is required under our criteria to rate senior preferred debt above the Long-Term IDR.

DEPOSIT RATINGS

Sondrio's 'BBB-'long-term deposit rating is one-notch above the bank's Long-Term IDR to refect protection from lower-ranking senior preferred and Tier 2 debt buffer, as full depositor preference is in force in Italy. The one-notch uplift also refects our expectation that the bank will maintain these buffers, given the need to comply with minimum requirement for own funds and eligible liabilities. The short-term deposit rating of 'F3' is in line with our rating correspondence table for banks with 'BBB-' long- term deposit ratings.

SUBORDINATED DEBT

Tier 2 debt is rated two notches below Sondrio's VR to refect 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 fexibility before non-viability.

SUPPORT RATING AND SUPPORT RATING FLOOR

The Support Rating (SR) of '5' and Support Rating Floor (SRF) of 'No Floor' refect Fitch's view that although external support is possible, it cannot be relied upon. Senior creditors can no longer expect to receive full extraordinary support from the sovereign in the event that the bank becomes non-viable. The EU's Bank Recovery and Resolution Directive and the Single Resolution Mechanism for eurozone banks provide a framework for the resolution of banks that requires senior creditors to participate in losses, if necessary, instead of or ahead of a bank receiving sovereign support.

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Banca Popolare di Sondrio Scpa published this content on 01 September 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 01 September 2021 17:01:10 UTC.