DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings of Banca Nazionale del Lavoro SpA (BNL or the Bank), the Italian banking subsidiary of BNP Paribas SA (BNPP, the Parent or the Group). The ratings include an A (high) Long-Term Issuer Rating and a R-1 (middle) Short-Term Issuer Rating, both with a Stable trend. The rating action follows the confirmation of DBRS Morningstar’s ratings on BNPP on June 28, 2022, and considers BNL’s credit fundamentals and financial performance in 2021. A full list of rating actions is included at the end of this press release.
KEY RATING CONSIDERATIONS
DBRS Morningstar has maintained the SA1 support assessment on BNL, which implies strong and predictable support from the Parent. The ratings of BNL are positioned one notch below the ratings of BNPP, in line with DBRS Morningstar’s rating approach for core banking subsidiaries located abroad in countries with low cross-border risk. On June 28, 2022, DBRS confirmed BNPP’s Long-Term Issuer Rating of AA (low) with a Stable trend.
The SA1 takes into consideration the 100% ownership of BNL by BNPP, its strategic importance and integration in the Group.
Given the SA1 designation, BNL’s ratings will generally move in tandem with BNPP’s ratings. An upgrade could follow an upgrade of the parent BNPP’s ratings.
Similarly, a downgrade could result from a downgrade of BNPP’s ratings or should the Bank become a non-core subsidiary for the Group.
BNL is BNPP’s banking subsidiary in Italy, which BNPP considers to be a domestic market. At end-2021, BNL had EUR 101 billion in total assets. The Bank operates in retail and corporate banking with a nationwide franchise and a solid footprint across Central and Western regions of Italy. The Bank has been part of BNPP since its acquisition in 2006.
BNL is viewed as a core component of BNPP’s retail franchise outside of France. In line with BNPP’s strategy, Italy is considered a key market for the Group together with France, Belgium and Luxembourg. BNL is integrated into the Parent company through shared systems, controls, management and strategy, as well as treasury and risk management, and DBRS Morningstar views that BNL’s franchise, product offering and reputation benefit from being part of a larger group. BNL has also consistently benefited from financial support from BNPP in various forms and DBRS Morningstar expects BNPP to continue to support BNL if needed.
At end-2021, BNPP had provided EUR 5.6 billion in total funds to BNL, corresponding to 5.5% of the Bank’s total liabilities and funds. Deposits from retail and corporate customers, however, remain the main source of funding, accounting for 65% of the total liabilities and funds. BNL also had EUR 19.0 billion of ECB funds, as a result of the Bank’s participation in the TLTRO III programme.
The Parent also remains committed to maintain BNL’s capital levels. The Bank reported a phased-in common equity tier 1 (CET1) ratio of 12.1% up from 12.8% in 2020, and a total capital ratio of 14.9%, up from 14.3% in 2020, which provides a good cushion above the ECB SREP requirements of 8.8% for CET1 and 13.0% for Total Capital.
The Bank’s results in 2021 were driven by lower provisions and higher revenues despite higher operating expenses. Net interest income remained pressured by the low interest rate environment and higher deposits, albeit these were compensated for by volume growth and a positive impact from TLTRO III. Fees and commissions were up strongly year-on-year (YoY), recovering from 2020 which had been impacted by COVID-19 and lockdowns. Similar to its parent BNPP, BNL continues with the implementation of cost efficiency measures, spanning from business simplification to digital transformation. Nonetheless, operating expenses grew slightly YoY, driven by business recovery and the cost-to-income ratio remained fairly stable in 2021. The cost of risk was down around 15% YoY compared to 2020 which incorporated provisions on performing loans on the back of the revisions of COVID-19-impacted macroeconomic scenarios.
BNL’s risk profile has continued to improve, driven by the still large but declining stock of NPLs. Total gross impaired loans amounted to EUR 4.8 billion at end-2021, down from EUR 6.0 billion at end-2020, thanks to a combination of NPL disposals and write-offs. As a result, the Bank’s total gross NPL ratio decreased to 5.1% at end-2021, from 6.9% at end-2020, which is now more in line with domestic peers and still somewhat above international peers. However, DBRS Morningstar views that the unprecedented measures put in place by the domestic and European authorities has delayed the formation of NPLs through the COVID-19 pandemic, and uncertainty remains regarding the full effect on asset quality. In addition, the macroeconomic outlook has been made less clear by Russia’s invasion of Ukraine.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/ Social/ Governance factor(s) that had a significant or relevant effect on the credit analysis
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
All figures are in EUR unless otherwise noted.
The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (23 June 2022) -https://www.dbrsmorningstar.com/research/398692/global-methodology-for-rating-banks-and-banking-organisations Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022) https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings
The sources of information used for this rating include Morningstar Inc. and Company Documents and BNL 2021 Consolidated Accounts. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.
DBRS Morningstar does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar's outlooks and ratings are under regular surveillance.
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.
The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/398981
This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Arnaud Journois, Vice President – Global Financial Institutions Group
Rating Committee Chair: Elisabeth Rudman – Managing Director, Head of European FIG – Global FIG
Initial Rating Date: December 11, 2017
Last Rating Date: June 29, 2021
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