The sudden deterioration in the operating environment following the Covid-19 outbreak in Q1 2020 and the ensuing lockdown is likely to drive Italy into a recession, which could put pressure on BPS’ asset quality and profitability. It is worth noting, however, that BPS remained profitable throughout the previous crisis. It has one of the lowest cost/income ratios in Italy, which allows it to book significant provisions while maintaining a positive bottom line. BPS is well capitalised, significantly exceeding SREP requirements, and has low leverage.

The BBB- issuer rating is based on BPS’ focused regional franchise in Lombardy, one of the wealthiest regions in Europe. BPS is a medium-sized cooperative bank primarily operating in Milan and other provinces in Lombardy, as well as in Rome and with a more marginal presence in several other northern Italian regions. BPS is also the parent company of the BPS group, which includes a small bank in Switzerland (BPS Suisse), and Factorit, a factoring joint venture with Banco BPM and Banca della Nuova Terra that specialises in agricultural business loans and payroll deductible loans.

Like other Italian banks, BPS saw a material deterioration in asset quality during the crisis, which it has tackled more slowly compared to peers. Derisking is a key managerial priority and asset quality metrics should improve in 2020 thanks to sizeable NPL disposals. BPS is primarily funded by deposits, though it also uses the ECB’s TLTRO lines.

This is not a rating action. On 8 April 2020, Scope changed the Outlook to Stable. Click here for the corresponding press release.

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