______________________________________________________________________________________________

PRESS RELEASE

FITCH RATINGS CONFIRMS ALL RATINGS OF BANCA POPOLARE DI SONDRIO

THE BANK'S LONG-TERM ISSUER DEFAULT RATING IS AT "BB+", OUTLOOK "STABLE"

Banca Popolare di Sondrio informs that today the agency Fitch Ratings, at the conclusion of the annual rating review process, has kept all the ratings assigned unchanged.

In particular, the Bank Long-term Issuer Default Rating ("IDR") was confirmed at "BB+", with "stable" outlook.

Following the agency's publication in November 2021 of its updated methodology for Bank Rating Criteria, the Support Rating of '5' and the Support Rating Floor of 'No Floor' were withdrawn as no longer relevant and the new Government Support Rating (GSR) of 'no support' (ns) was assigned.

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+"
  • Government Support Rating: "ns"
  • Long-termDeposit Rating: "BBB-"
  • Short-termDeposit Rating: "F3"
  • Senior Preferred Debt: "BB+"
  • Subordinated Tier 2 Debt: "BB-"
  • Outlook: "Stabile"

1

______________________________________________________________________________________________

Banca Popolare di Sondrio

______________________________________________________________________________________________

Please find attached the press release issued by Fitch Ratings.

Sondrio, 27 July 2022

Company contacts:

Investor Relations

Relazioni esterne

Michele Minelli

Paolo Lorenzini

0342-528.745

0342-528.212

michele.minelli@popso.it

paolo.lorenzini@popso.it

Image Building

Cristina Fossati

Anna Pirtali

02-890.11.300

popso@imagebuilding.it

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

2

______________________________________________________________________________________________

Banca Popolare di Sondrio

27/07/2022, 17:32

Fitch Affirms Banca Popolare di Sondrio at 'BB+'/Stable

RATING ACTION COMMENTARY

Fitch Affrms Banca Popolare di Sondrio at 'BB+'/Stable

Wed 27 Jul, 2022 - 11:10 ET

Fitch Ratings - Milan - 27 Jul 2022: Fitch Ratings has affrmed Banca Popolare di Sondrio's (Sondrio) Long-Term Issuer Default Rating (IDR) at 'BB+' and Viability Rating (VR) at 'bb+'. The Outlook on the Long-Term IDR is Stable. A full list of rating actions is below.

Fitch has withdrawn Sondrio'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 in November 2021. In line with the updated criteria, Fitch has assigned Sondrio a Government Support Rating (GSR) of 'no support' (ns).

KEY RATING DRIVERS

Second-TierRegional Bank: Sondrio's ratings refect its second-tier franchise as a regional bank with small national market shares and traditional commercial-banking business model. They also consider the bank's satisfactory regulatory capitalisation and buffers, a sound funding and liquidity profle as well as our expectations that asset quality will improve to levels that are fully commensurate with its 'bb+' VR.

Moderate Risk Profle: Sondrio's risk profle benefts from operating mostly in the wealthy region of Lombardy, where default rates are below the national average. Its lending exposure to SMEs and companies is well-diversifed by sector and borrower. Risk- taking and control processes are in line with market standards. Sondrio's risk appetite features sizeable own sovereign direct exposure through securities holdings.

https://www.fitchratings.com/research/structured-finance/covered-bonds/fitch-affirms-banca-popolare-di-sondrio-at-bb-stable-27-07-20221/10

27/07/2022, 17:32

Fitch Affirms Banca Popolare di Sondrio at 'BB+'/Stable

Asset Quality Near Industry Average: Sondrio has reduced its impaired loan ratio to 5.8% at end-1Q22 from 13% at end-2019, closer to the industry average of about 4.5% at end-2021, on tightened underwriting and monitoring and small impaired loan sales.

Fitch expects impaired loan disposals to continue and compensate for likely asset-quality deterioration resulting from rising infation and weaker economic growth. We forecast Sondrio's impaired loan ratio to remain stable over the next two years, moderately above the target set by the bank under its strategic plan.

Prospects of Higher Revenue: Fees from the sale of investment and insurance products have been increasing over the past four years, contributing to revenue growth. Operating proftability was supported by acceptable cost effciency. We expect this trend to continue in line with the bank's recently refreshed business strategy. We forecast the bank's operating proft to increase to about 1.5% of risk-weighted assets (RWAs) by 2023, as higher revenue should more than compensate for an expected increase in loan impairment charges (LICs) and despite infation pressure affecting costs.

Lower Capital Encumbrance Expected: Sondrio's common equity Tier 1 (CET1) ratio of 15.3% at end-1Q22 had ample buffers over regulatory requirements. While we expect capital encumbrance by impaired loans to remain broadly stable over the next two years, capital encumbrance by Italian government bonds will start reducing as TLTRO facilities mature, to a more contained 170% of CET1 by 2025, which nonetheless remains higher than at higher-rated banks.

Stable Funding, Ample Liquidity: The bank's funding and liquidity profle is sound. Customer deposits are a large and stable source of funding, due to the bank's adequate franchise in its home region and strong client relationships. Funding sources are increasingly diversifed through access to wholesale funding markets, although less so than at higher-rated domestic peers. Sound liquidity is underpinned by adequate buffers of unencumbered eligible assets and access to ECB fnancing.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Sondrio's ratings and Outlook are vulnerable to a signifcant weakening of the operating environment in Italy, due for example to much slower economic growth than our forecasts, which could result in increased default rates and ultimately lead to deterioration of the bank's asset quality beyond our current expectations, and/or capital and proftability metrics that are weaker than our expectations.

https://www.fitchratings.com/research/structured-finance/covered-bonds/fitch-affirms-banca-popolare-di-sondrio-at-bb-stable-27-07-20222/10

27/07/2022, 17:32

Fitch Affirms Banca Popolare di Sondrio at 'BB+'/Stable

The ratings could also be downgraded if Sondrio increases its risk appetite, for example due to a loosening of underwriting standards to pursue business growth, leading to material deterioration in its asset quality and causing signifcant capital erosion, including through higher-than-expected capital encumbrance by unreserved impaired loans.

In particular, the ratings could be downgraded if we expect its CET1 ratio to edge closer to 13%, its impaired loan ratio deteriorates towards 10% and capital encumbrance by unreserved NPLs rises close to 50%, without the prospect of recovery in the short term.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Rating upside is currently limited, unless Sondrio sees improvement in asset quality with an impaired loan ratio consistently below 4%, a more diversifed business model resulting in operating proft sustainably above 1.5% of RWAs and stronger capitalisation in the form of stable regulatory ratios and reduced encumbrance by Italian government bonds.

OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS

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

The short-term deposit rating of 'F3' maps to a 'BBB-'long-term deposit rating.

The subordinated debt of Sondrio is rated two notches below its VR for loss severity to refect poor recovery prospects.

No Support: Sondrio's GSR of 'ns' refects Fitch's view that although external extraordinary sovereign 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 resolving banks that requires senior creditors participating in losses, if necessary, instead of or ahead of a bank receiving sovereign support.

OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES

The long-term deposit rating is sensitive to changes in the Long-Term IDR. It would also be downgraded in the event of a reduction in the buffers of senior and junior debt, or if the bank fails to comply with its MREL.

https://www.fitchratings.com/research/structured-finance/covered-bonds/fitch-affirms-banca-popolare-di-sondrio-at-bb-stable-27-07-20223/10

This is an excerpt of the original content. To continue reading it, access the original document here.

Attachments

  • Original Link
  • Original Document
  • Permalink

Disclaimer

Banca Popolare di Sondrio Scpa published this content on 27 July 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 July 2022 16:17:24 UTC.