The ratings are driven by Intesa’s strong capital position and resilient profitability despite the challenging operating environment in Italy, where 81% of the loan portfolio is based. The group has been the leading retail and commercial bank in Italy since the merger of Banca Intesa and San Paolo IMI in 2007.

Group earnings and asset quality have suffered from the weak domestic economic environment in the past, but pre-provision profitability has been resilient, and the group has remained profitable if we exclude the large goodwill write-downs in 2011 and 2013.

Despite a presence in central and eastern Europe, Intesa’s operations are primarily domestic. Significant holdings in Italian sovereign debt particularly expose it to market confidence in Italian banks and in Italy in general.

With the large disposal of bad loans in 2018, Intesa has materially derisked its balance sheet, and could even exceed its 2021 asset quality targets.

The 2018-21 business plan targets a return on average tangible equity of 14.6%, with growth in commission income a key driver of the improved profitability. Cost savings, including a significant reduction in both the branch network and headcount, are also forecast to contribute significantly to profit growth. The ability to generate recurring earnings and capital while keeping risk under control is a key support for the ratings.
 

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