DBRS Assigns First-Time Ratings to Banca Nazionale del Lavoro SpA (BNL)

DBRS Ratings Limited (DBRS) assigned first-time ratings to Banca Nazionale del Lavoro SpA (BNL or the Bank), the Italian banking subsidiary of BNP Paribas (BNP, the Parent or the Group). The ratings assigned include an A (high) Long-Term Issuer Rating and an R-1 (middle) Short-Term Issuer Rating. The trend on all ratings is Stable. A full list of ratings assigned is included at the end of this press release.

DBRS has assigned a support assessment of SA1 to BNL which implies strong and predictable support from the Parent. As a result, the final ratings for BNL are notched down from the Parent. DBRS currently rates BNP’s Long-Term Issuer Rating and Long-Term Senior Debt at AA (low) with a Stable Trend. The ratings for BNL are one notch below the ratings of BNP Paribas, in line with DBRS’ rating approach for core banking subsidiaries located abroad in countries with low cross-border risk.

The SA1 support assessment to BNL takes into consideration its 100% ownership by BNP, its strategic importance and integration in the Group, as well as BNL’s financial track record and credit fundamentals.

BNL is the Italian banking subsidiary of BNP Paribas. Headquartered in Rome, BNL is Italy’s 6th largest bank by 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 BNP since the acquisition in 2006.

BNL is viewed as a core component of BNP’s international retail franchise. In line with BNP’ strategy, Italy is considered a key “Domestic 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. The Bank’s franchise, product offering and reputation benefit of being part of BNP Group. Moreover, over the time, BNL has consistently benefited from the financial support of the Parent in various forms.

The Bank is mainly funded by deposits with retail and corporate customers which represented approximately 59% of the BNL’s liabilities. In addition, the Bank’s funding profile and costs benefit from the Parent support. Apart from the ECB’s funding, the access to the wholesale market is mainly centralised at BNP Paribas level. At FY16, BNP provided EUR 11 billion in total funds corresponding to 15% of the BNL’s total liabilities.

At FY16, BNL reported CET 1 and total capital ratios at 12.2% and 13.2%, respectively, which were above the ECB SREP requirements. Nonetheless, BNL’s capital position remains burden by the high stock of unreserved NPLs (Non-Performing Loans). Recent improvements in the Bank’s capital buffers were supported by the adoption of new RWA models and retained earnings. The Parent company has so far contributed to protect the Bank’s capital conservation with a non-dividend distribution policy. Parental support was also provided by purchasing BNL’s AT1 and Tier 2 capital instruments. Going forward, DBRS expects BNP to support BNL’s capital position when needed.

BNL’s risk profile is impacted by EUR 13 billion in gross NPLs corresponding to 19% of the total gross loans at FY16. On a net basis, considering a total coverage of 55%, BNL reported a NPL ratio of 9.5% which is in line with its Italian peers. The stock of NPLs, which reached its peak in 2015, is expected to decrease gradually supported by a combination of lower NPL inflows, workout measures and disposals. In January 2017, BNL sold a portfolio of EUR 900 million in unsecured NPLs.

In 2016, the Bank reported consolidated net income of EUR 125 million. BNL’s profitability is generally moderate due to weaker Net Interest Income (NII) and still high cost of credit. BNL’s NII continues to reflect pressure from the low interest rates environment, high market competition and de-risking initiatives to improve the Bank’s asset quality. On other hand, the Bank is making progress in expanding its fees and commission income by placing asset under management and insurance products. Currently, in line with the strategy outlined by the Parent, BNL is carrying out several initiatives to improve efficiency including Corporate simplification, downsize of the branch network and workforce, as well as promoting digital transformation.

RATING DRIVERS
Given the SA1 designation, which implies the expectation of strong and predictable support from the Parent, BNL’s ratings will generally move in tandem with BNP Paribas’s ratings. However, the ratings of BNL may deviate from those of the parent should the Bank become a non-core subsidiary for the BNP Group.

Notes:
All figures are in Euros unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (May 2017). This can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include company reports and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

This rating concerns a newly rated issuer. This is the first DBRS rating on this issuer.

DBRS 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.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance.

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Nicola De Caro, Vice President – Global FIG
Rating Committee Chair: Elisabeth Rudman, Managing Director, Head of EU FIG - Global FIG
Initial Rating Date: December 11, 2017
Most Recent Rating Update: Not Applicable as no last rating date

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