Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodologies, including key rating assumptions and model. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the senior tranche of EIB SME Initiative for Italy (BCP) on 26 June 2023.

Senior tranche, EUR 1.53m*: AAA_SF

*Outstanding amounts reflect amortisation and defaults as of 31 March 2023.

The financial guarantee provided by the European Investment Fund (EIF) to Banca di Credito Popolare SCpA (BCP, the protection buyer) is an EU-sponsored risk transfer transaction of Italian SME credit rights, in the context of the European Investment Bank (EIB) Group SME Initiative for Italy. The credit rights were originated and will be serviced by BCP. The EIF has the right to terminate the guarantee in case the service process does not comply with initially agreed procedures and policies. Under the financial guarantee, 50% of losses incurred from the reference portfolio can be claimed by BCP from the EIF. The guarantee splits into five tranches of risk cover. Scope only assigned a rating to the senior risk cover. The guarantee terminates on 30 September 2032.

As of 31 March 2023, 90-days-past-due and defaulted loans collectively represent 1.8% of the initial reference portfolio, which is better than Scope’s expectation. The protection buyer has removed EUR 5.8m of portfolio notional from the reference portfolio. The reference portfolio amortisation is in line with Scope’s expectation.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

Increased credit enhancement (positive). The high level of credit enhancement provides a strong buffer against potential adverse reference portfolio performance and mitigates the build-up of obligor concentrations. The senior tranche credit enhancement increased to 87.5%, from 45.2% as at the initial rating assignment (adjusted for expected losses).

Alignment of interests and transaction process supervision (positive). BCP must maintain a minimum economic interest of 5% in each exposure it has assigned to the SME Initiative. In addition, the guarantee can be terminated if BCP deviates materially from its internal credit and collection policies.

Efficient guarantee mechanics (positive). The loss claims under the guarantee are based on an expected loss calculation, which minimises cash flows between BCP and the EIF and significantly reduces the counterparty risk exposure to BCP.

Asset credit quality (negative). Scope assumes the average credit quality of the portfolio to be commensurate with B. This reflects the high lifetime default rate, partially offset by recovery expectations.

Significant obligor concentration (negative). The share of top obligors (exposure at more than 0.5%) in the portfolio remains high and increases to 76.3% as of 31 March 2023 from 70.5% at last review.

Performance data (negative). Historical performance data presented to Scope at closing lacked granularity and covered a relatively short span. Scope has therefore also considered BCP’s loss-given-default estimates as well as market data.

Italy’s economic uncertainty (negative). The prolonged Russia-Ukraine war and increased inflation would continue to impact the Italian economy. The growth prospects would even be worse were it not for the EU’s significant and very timely recovery funds.

The methodologies applicable for the reviewed rating (SME ABS Rating Methodology, 16 May 2023; Counterparty Risk Methodology, 14 July 2022; General Structured Finance Rating Methodology, 25 January 2023) are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Guang Yang, Analyst

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