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/or 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 methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for Banca Popolare di Sondrio S.p.A (BPS) on 5 October 2023.

The following rating was reviewed: issuer rating at BBB/Stable.

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

Established retail and commercial banking franchise in the wealthy region of Lombardy, Italy: this position ensures moderately stable and predictable revenue and earnings over the cycle. Although BPS has low national market shares, it enjoys a dominant position in its home province of Sondrio and has a significant market presence in the provinces of Lecco and Como. BPS is also the parent company of the BPS group, which includes BPS Suisse, a small bank in Switzerland, as well as Factorit and BNT Banca, which specialise in factoring and payroll-deductible loans respectively.

Long-term sustainability assessment reflects the group’s efforts to enhance its corporate governance: this includes the transformation into a joint stock company and the reorganisation of the management structure. The assessment also considers the group’s cooperative roots and its attention to the territories where it operates, indicating strong social responsibility and responsiveness to the interests of various stakeholders. Scope, however, believes that there is material room for improvement in the bank’s preparedness for digital competition.

Neutral earnings capacity and risk exposures based on BPS’ demonstrated ability to generate earnings throughout the cycle and improved asset quality: while low by international standards, BPS’ profitability has been better than average for Italian banks. Stable revenue, good cost efficiency, moderate loan losses and the lack of large one-off restructuring costs have enabled the group to maintain a positive performance over the past decade. This sets it apart from many peers, which required material capital injections. Scope also considers the material improvement in the group’s asset quality since 2017, with headline metrics now close to domestic and European peers.

The group has material exposure to Italian sovereign debt (EUR 6.7bn, about 200% of the group’s CET1 capital as of June 2023), although this is not a rating constraint. Moreover, the majority is held at amortised cost, limiting the sensitivity of the group’s capital position to sovereign spread volatility.

Comfortable financial viability management: BPS has comfortable buffers to regulatory requirements and Scope expects these to be maintained. BPS is primarily funded via customer deposits, which have grown as the balance sheet has expanded over the years.

Outlook and rating-change drivers

The Stable Outlook reflects Scope’s view that BPS’ credit profile will remain unchanged over the next 12-18 months. Scope expects the group’s operating performance to benefit from higher interest rates over the next few quarters, providing a buffer to comfortably manage an increase in credit losses in the event of an economic downturn.

Positive rating-change driver

• Scope currently sees limited upside to BPS’ issuer rating given the group’s lower business diversification compared to peers. The rating already incorporates the group’s greatly improved asset quality profile as well as the comfortable capital and funding positions.

Negative rating-change drivers

• A significant reduction in the buffer to capital requirements, currently a key support for the rating.
   
• A material increase in non-performing loans linked to a worsening of operating conditions.

Overview of rating construct

Operating environment: Supportive

Business model: Consistent

Initial mapping refinement: Low

Initial mapping: bbb-/bbb

Long-term sustainability (ESG-D): Developing

Adjusted anchor: bbb-

Earnings capacity and risk exposures: Neutral

Financial viability management: Comfortable

Additional rating factors: Neutral factor

Stand-alone assessment: bbb

External support: not applicable

Issuer rating: BBB
 
The methodology applicable for the reviewed rating and rating Outlook (Financial Institutions Rating Methodology, 7 February 2023) is 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 Alessandro Boratti, Senior analyst

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