Morningstar DBRS Confirms Intesa Sanpaolo SpA's Long-Term Issuer Rating at BBB (high) With a Positive Trend

DBRS Ratings GmbH (Morningstar DBRS) confirmed the credit ratings of Intesa Sanpaolo SpA (Intesa or the Bank), including the Long-Term Issuer Rating of BBB (high) and the Short-Term Issuer Rating of R-1 (low). The trend on the long-term credit ratings is Positive, while the trend on short-term credit ratings is Stable. The Intrinsic Assessment (IA) of the Bank is maintained at BBB (high) and the Support Assessment at SA3. A full list of credit rating actions is included at the end of this press release.

KEY CREDIT RATING CONSIDERATIONS
The Bank's IA of BBB (high) remains positioned below the Intrinsic Assessment Range (IAR), largely driven by the Republic of Italy's (Italy) sovereign credit rating. While Morningstar DBRS continues to recognise the strengths of Intesa's business model, its leading market positions, and solid capital levels, the Bank's credit ratings are also highly correlated with any changes made to the sovereign credit rating, given its high exposure to Italian sovereign bonds and concentration in the domestic banking market.

The Bank's Long-Term Senior Debt and Long-Term Deposits ratings are both positioned in line with Italy's BBB (high) sovereign credit rating. The Positive trend on the long-term credit ratings reflects the Positive trend on Italy, in place since 25 October 2024.

Intesa's credit ratings consider the Bank's leading retail and commercial banking franchise in Italy, supported by its diversified business model and solid earnings profile. In addition, credit ratings are underpinned by the Bank's robust funding profile, owing to Intesa's large, stable, and granular deposit base as well as the Bank's solid capital position, benefitting from a good internal generation capacity despite a historically high dividend payout and large share buybacks in recent years.

Its credit ratings incorporate the significant improvement Intesa has achieved with its risk profile over recent years, noting that the Bank's exposure to Russia has declined to nonmaterial levels in Q1 2025. Morningstar DBRS views Intesa as well placed to navigate the highly uncertain operating environment, against a background of rising global trade tensions and heightened geopolitical risks. 

The credit ratings are also underpinned by Intesa's strong profitability, resulting from a combination of very sound operating efficiency, contained cost of risk (COR), and strong core revenue generation. However, Morningstar DBRS believes profitability has peaked, with net interest income (NII) showing signs of compression in early 2025 amid lower interest rates albeit compensated by solid fee income performance driven by Intesa's high degree of business diversification.

Morningstar DBRS remain concerned about heightened economic and geopolitical uncertainty, particularly as it relates to the U.S. trade policy and tariffs, which could dampen Italy's growth outlook. A sustained decline in economic activity and prolonged high unemployment could have an adverse impact on the Bank's profitability and asset quality.

CREDIT RATING DRIVERS
An upgrade of the Long-Term Issuer Rating would require an upgrade of Italy's sovereign credit rating and the Bank maintaining its current fundamentals, including robust profitability, sound asset quality, and solid capital position.

Given the Positive trend, a downgrade of the Long-Term Issuer Rating is unlikely. However, the trend on the Bank's credit ratings could be revised to Stable in the case of a similar credit rating action on Italy's sovereign credit rating or if there were a substantial deterioration in the Bank's profitability, risk profile, and capital position.

CREDIT RATING RATIONALE

Franchise Combined Building Block Assessment: Strong/Good
With EUR 935 billion of total assets as of the end of March 2025, Intesa is the largest Italian banking group providing universal banking products to corporate and retail clients mainly in Italy, and to lesser extent, in Central and Eastern Europe and the Middle East. The Bank maintains a solid competitive position in Italy underpinned by its large domestic franchise, well-diversified business model, and strong reputation. Revenue diversification towards fee-driven activities including asset management, private banking, and insurance, as well as strong cost discipline have been key contributors to the Bank's resilient pre-provision income. Under the new 2022-25 business plan, the Bank remains focused on further derisking, cost control, and digitalisation as well as greater income diversification from commissions driven by wealth management, protection and advisory, and stronger commitment on sustainability and environmental, social, and governance (ESG) on which the Bank is delivering. The Bank expects its technology transformation to bring an additional EUR 500 million contribution to gross income compared with the target initially set in the 2022-25 business plan, which should offset the impact from higher inflation and renewal of the labour contract.

Earnings Combined Building Block Assessment: Strong/Good
The Bank reported a net income of EUR 2.6 billion in Q1 2025, up 13.6% year over year (YOY), marking again its best-ever quarter since 2007. However, revenues were only slightly up YOY in Q1 2025, driven by lower NII amid lower interest rates, albeit offset by higher fees and commissions, mainly management, dealing, and consultancy fees as well as higher profits on financial assets at fair value. Morningstar DBRS also notes the strong performance of the insurance business, supporting revenues. Morningstar DBRS expects similar trends for the remainder of the year. The Bank kept its cost base under control despite intensive technology investments thanks to a 1.1% YOY reduction in administrative costs and a 1.2% YOY decrease in personal expenses resulting in a slight decrease in operating expenses of 0.5% YOY. As a result, Intesa's cost-to-income ratio improved further to 38.0% in Q1 2025, down from 38.4´% in Q1 2024, very well placed within the European peer group. Loan Loss Provisions were down 4.3% YOY to EUR 224 million in Q1 2025, including EUR 1 million in relation to Russia/Ukraine exposures, mainly owing to the continued derisking process. The Bank reported an annualised COR at 21 basis points (bps) with overlays totalling EUR 0.9 billion in Q1 2025, reflecting the significant derisking the Bank has gone through. Morningstar DBRS expects Intesa to maintain its COR at low levels thanks to its cleaner asset quality profile.

Risk Combined Building Block Assessment: Good
In Morningstar DBRS' view, Intesa reports sound asset quality thanks to several years of gradual reduction in nonperforming loans (NPLs), adequate provisions, and prudent underwriting. Since the NPL peak in 2015, gross NPLs have gradually decreased to reach EUR 9.9 billion as of the end of March 2025. The reduction in NPLs was mainly driven by large disposals, as well as by recoveries and lower NPL inflows in line with the improving performance of the Italian economy. In Morningstar DBRS' view, Intesa's asset quality provides a solid starting point for any potential deterioration the Bank might face given that risks to asset quality have increased, against a background of ongoing rising trade tensions and heightened geopolitical risks. At the end of March 2025, Intesa reported a low gross NPL ratio of 2.4% somewhat flat YOY and a net NPL ratio of 1.2%, in line with the ratio reported a year ago (as calculated by Morningstar DBRS) and in line with the European average. The total cash coverage of NPEs stood at 50.1% at the end of March 2025, in line with the Italian banking sector. Coverage for bad loans was 67.3% (68.0% at YE2024), and coverage of unlikely to-pay loans was 40.2% (39.8% at YE2024). Intesa has actively reduced its exposure to Russia to around EUR 300 million in Q1 2025 (around 0.1% of the Bank's risk-weighted assets (RWAs)) from around EUR 8.9 billion in Q1 2022 (2.7% of the Bank's RWAs).

Funding and Liquidity Combined Building Block Assessment: Good
Morningstar DBRS views Intesa's funding profile as solid, benefitting from a robust, diversified, and granular retail deposit base. As of the end of March 2025, current accounts and deposits, both retail and wholesale, accounted for 70% of total direct deposits from the banking business, up from 68% in Q1 2024 and fairly in line with previous years. In addition, retail funding accounted for 77% of direct deposits from the banking business, while 85% household deposits are considered secured, guaranteed by the Deposit Guarantee Scheme. Intesa remains a frequent a large issuer on the wholesale markets and continues to compare favourably with Italian peers. This reflects Morningstar DBRS' view of the bank's strong market position, even during periods of stress. This is evidenced by wholesale issuances in 2024 of EUR 2.00 billion Senior Debt, EUR 1.50 billion Senior Non-Preferred Debt, EUR 1.00 billion of Additional Tier 1 (AT1) debt, and EUR 1.25 billion of Tier 2 debt, completed by a further EUR 0.5 billion of Bullet Tier 2 debt in February 2025, demonstrating investor appetite for the Bank's issuances. The Bank expects to issue between EUR 2.0 billion and EUR 2.5 billion in 2025, with EUR 0.5 billion having already been executed in Q1 2025. Another factor supporting the credit ratings is the Bank's solid liquidity position. At the end of March 2025, Intesa's total high-quality liquid assets (HQLAs) were around EUR 169 billion and its unencumbered HQLAs with central banks were EUR 127 billion. Also confirming a solid liquidity position, the Bank reported LCR and NSFR ratios well above the regulatory requirements of 147% and 121% at the end of March 2025.

Capitalisation Combined Building Block Assessment: Good/Moderate
Intesa continues to maintain a solid capital position, driven by a strong capital generation capacity despite a traditionally large shareholder remuneration. The Bank reported a pro forma fully phased-in CET1 capital ratio of around 13.3%, taking into account the share buyback of EUR 2.0 billion to be launched in June 2025 (impact of around 40 bps from 13.7% at YE2023) as well as the Basel IV impact as of January 1, 2025, which was more than 40 bps. The Bank's capital position benefits from organic capital generation, lower RWAs, and deferred tax assets, which offset the distribution of EUR 1.8 billion in accrued dividends and the payment of the AT1 coupon (EUR 100 million). The CET1 ratio remains well above the target of 12% for the 2022-25 business plan. At the end of March 2025, Intesa reported a fully phased-in total capital ratio of 18.8%. This continued to provide ample buffers of the reported regulatory requirements of 9.84% for CET1 and of around 14.0% for total capital as estimated by Morningstar DBRS. Morningstar DBRS also notes that Intesa amply meets its Minimum Requirement for Own Funds and Eligible Liabilities.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/454589.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
The following Social and Governance factors had a significant effect on the credit analysis: Pass-through Social and Governance credit considerations. The Social and Governance factors affect Intesa as the ESG factors for Italy are passed through to Intesa.

There were no Environmental factors that had a relevant or significant effect on the credit analysis.

Credit rating actions on Italy are likely to have an impact on these credit ratings. ESG factors that have a significant or relevant effect on the credit analysis of Italy are discussed separately at https://dbrs.morningstar.com/issuers/17689.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025), https://dbrs.morningstar.com/research/454196.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (4 June 2024), https://dbrs.morningstar.com/research/433881. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025) https://dbrs.morningstar.com/research/454196 in its consideration of ESG factors.

The following methodology has also been applied:
Morningstar DBRS Global Corporate Criteria (3 February 2025), https://dbrs.morningstar.com/research/447186

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The sources of information used for these credit ratings include Morningstar, Inc. and company documents. Other sources include Intesa's Q1 2025 Results Press Release, Intesa's Q1 2025 Results Presentation, Intesa's Q1 2025 Report, Intesa's Annual Reports 2020-24, and Intesa's 2024 Nonfinancial Statement. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

Morningstar DBRS does not audit the information it receives in connection with the credit 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. Morningstar DBRS' trends and credit ratings are under regular surveillance.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://dbrs.morningstar.com/research/454590.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Arnaud Journois, Senior Vice President, European Financial Institution Ratings
Rating Committee Chair: Marcos Alvarez, Managing Director, Global Financial Institution Ratings
Initial Rating Date: 19 September 2013
Last Rating Date: 4 November 2024

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