DBRS Confirms Ratings of Banca Nazionale del Lavoro SpA (BNL) at A (high)/R-1 (middle)

DBRS Ratings Limited (DBRS) confirmed the ratings of Banca Nazionale del Lavoro SpA (BNL or the Bank), the Italian banking subsidiary of BNP Paribas (BNPP, the Parent or the Group). The ratings include an A (high) Long-Term Issuer Rating and R-1 (middle) Short-Term Issuer Rating, with Stable trend. Today’s rating action follows the confirmation of DBRS ratings on BNP Paribas on July 13, 2018, and considers BNL’s credit fundamentals and financial performance at YE 2017. A full list of ratings is included at the end of this press release.

KEY RATING CONSIDERATIONS
DBRS has maintained the SA1 support assessment of BNL which implies strong and predictable support from the Parent. 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. On July 13, 2018, DBRS confirmed BNPP’s Long-Term Issuer Rating and Long-Term Senior Debt at AA (low) with Stable Trend.

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

RATING DRIVERS
Given the SA1 designation, BNL’s ratings will generally move in tandem with BNP Paribas’s ratings. Positive rating pressure could arise from an upgrade of the parent BNP Paribas’ ratings. Negative rating implications could result from a downgrade of the Parent’s ratings or should the Bank become a non-core subsidiary for the BNP Group.

RATING RATIONALE
BNL is the Italian banking subsidiary of BNP Paribas. At YE 2017, BNL had EUR 79 billion in total assets, based on consolidated balance sheet data. 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 international retail franchise. In line with BNPP’ 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. Going forward, DBRS expects BNPP to support BNL when needed.

At 2017YE, BNPP provided EUR 12.6 billion in total funds to BNL, corresponding to 17% of the Bank’s total liabilities. Deposits from retail and corporate customers, however, remain the main source of funding of the Bank, accounting to 60% of the total liabilities.

On the capital side, the Parent continues to protect BNL’s capital conservation with a non-dividend distribution policy. At YE 2017, BNL’s capital position included retained earnings of EUR 149 million. The Bank reported CET ratio (phased-in) of 11.2% down from 12.2% in 2016, mainly as a result of higher RWAs resulting from the update of the LGD model for the Mid-Corporate segment. Total capital ratio stood at 12.5% versus 13.2% in 2016.

In 2017, BNL reported consolidated net income of EUR 149 million, up 19% YoY. In 2017, the Bank made progress in expanding its fees from the distribution of wealth management and insurance products, as well as commissions from its Corporate division. In line with the strategy outlined by the Parent, BNL is also implementing several initiatives including corporate simplification, streamline of the operating network as well as digital transformation. At YE 2017, the Bank reported a cost to income ratio of 61%. Nonetheless, BNL’s profitability continues to be pressure by weaker net interest income due to the low interest environment, high market competition and de-risking initiatives. In addition, albeit reducing, the Bank’s cost of risk remains high.

BNL’s risk profile reflects a large stock of NPLs. Total gross impaired assets amounted to EUR 11 billion, gross of provisions, at YE 2017. The stock of NPLs, which reached its peak in 2015, is gradually being reduced supported by disposals, lower NPL inflows and workout measures. The Bank’s total gross NPL ratio improved to 16.8% at YE 2017 from 19.0% at YE 2016. Net of provisions, BNL reported a NPL ratio of 8.8%, down from 9.5% in 2016.

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 documents and SNL financial. DBRS considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

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, Senior 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: December 11, 2017

DBRS Ratings Limited
20 Fenchurch Street
31st Floor
London
EC3M 3BY
United Kingdom
Registered in England and Wales: No. 7139960

Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.