Rating action

Scope Ratings has today affirmed the BBB issuer rating on IBL SpA, with a Stable Outlook.

Rating rationale

The BBB rating is based on the low-risk business model of IBL, a leader in the Italian market for payroll- and pension-deducted loans (PDLs), which are high-margin, low-risk personal loan products with a long history in Italy. These loans have a complex structure, involving several players and a long origination process. IBL seems to have mastered the vertical value chain entirely, evidenced by the bank’s negligible credit-loss levels and high profitability across the credit cycle.

The Outlook is Stable, reflecting Scope’s view that risks to the current rating level are balanced. The Covid-19 lockdown, which is likely to drive a very deep economic downturn in Italy, will not materially alter IBL’s risk profile. This opinion is based on the bank’s low asset risk and strong lines of defence, which include high profitability and strong capital. IBL’s capital position is adequate, and will materially improve due to a reduction in the risk weight intensity of PDLs under CRD5.

The ratings also account for the exposure to Italian government bonds, mostly financed via short-term repos. These bonds represent a large risk concentration but do not pose a short-term risk to the group’s regulatory capital as most are in the held-to-collect portfolio. They could, however, become a drain on liquidity under stressed scenarios.

Aside from repo funding for the government bond portfolio, IBL funds itself through deposits and securitisations of its loan book, which have historically been retained and used as collateral for repo operations. TLTRO3 eligibility will structurally change the funding of the bank, allowing it to lower its cost of funding.

Scope’s analysis also highlights the key person risk regarding Mario Giordano, the bank’s CEO since 1998.

Key rating drivers

• Market leader in Italian payroll- and pension-deducted loans
   
• Very low asset risk due to the intrinsic characteristics of the products
   
• Strategic targeting of market share consolidation and business diversification
   
• Very strong financial fundamentals, including capital, asset quality and profitability
   
• Material exposure to Italian sovereign risk
   
• TLTRO3 eligibility providing funding surplus and flexibility
   
• Owned and closely controlled by management

Rating-change drivers

Among negative rating-change drivers, Scope highlights:

• A material increase in business model risk as a result of IBL diversification efforts
   
• Volatility in the value of the government bond portfolio
   
• Any indication that Italy’s eurozone membership is at risk

Among positive rating-change drivers, Scope highlights:

• A material reduction in the large carry trade in government securities

Stress testing & cash flow analysis
No stress testing was performed. No cash flow analysis was performed.

Methodology
The methodology used for this rating and/or rating outlook (Bank Rating Methodology, 4 May 2020) is available on https://www.scoperatings.com/#!methodology/list.
Information on the meaning of each rating category, including definitions of default and recoveries can be viewed in the “Rating Definitions - Credit Ratings and Ancillary Services” published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how Environmental, Social or Governance factors (ESG factor) are incorporated into the rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The rated entity and/or its agents participated in the rating process.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity, third parties.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Marco Troiano, Executive Director.
Person responsible for approval of the rating: Dierk Brandenburg, Managing Director
The rating/outlook was first released by Scope on 12 March 2018. The rating/outlook was last updated on 12 July 2019.

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
© 2020 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Analysis GmbH, Scope Investor Services GmbH and Scope Risk Solutions GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.

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