MOODY'S LOWERS LONG AND SHORT TERM DEPOSIT RATINGS OF BANCA DI ROMA TO A3/PRIME-2; CONFIRMS FINANCIAL STRENGTH RATING AT D+
London, 06-16-98 -- Moody's Investors Service lowered the long and short-term deposit ratings of Banca di Roma SpA (Banca di Roma) to A3/Prime-2 from A2/Prime-1. The D+ bank financial strength rating was confirmed. These rating actions conclude the review initiated last September. The rating agency noted that Banca di Roma has taken a number of steps to address and remedy the Group's structural weaknesses in recent months. However, the ratings downgrades reflect Moody's view first, that significant structural weaknesses remain, including weak profitability and deteriorating asset quality; and secondly, that the bank's risk profile is higher following its recent privatization. The rating agency added that in the increasingly competitive Italian banking market, Banca di Roma's efforts to improve its competitiveness, profitability and financial profile represent a considerable challenge.
Moody's said that over the last year Banca di Roma has taken a number of important steps towards improving its franchise and profitability, and stabilising its financial position in anticipation of the privatization and initial public share offering which took place in December 1997. Following these transactions, IRI, the state holding company, which held 36% of the share capital, effectively disposed of its stake, and the holding of Ente Cassa di Risparmio di Roma (Ente) was reduced from 52% to some 27%. The Ente has entered into a shareholder agreement with Toro, a leading Italian composite insurer. In the longer-term, this shift of majority ownership of the bank out of the public sector may have a beneficial impact on the performance of the bank; however, Moody's believes that in the meantime, the change has raised its risk profile. At the same time, the altered shareholder structure should be a positive element in any initiatives Banca di Roma might take to position itself in the rapidly consolidating Italian banking sector.
Banca di Roma's capitalization has been strengthened by the Lit 2.7 trillion fresh equity raised at the time of the privatization in December, Moody's said. In addition, the bank has focused increasingly on trying to maximise the value generated from its core franchise, and has made progress on reducing its holdings of non-strategic and low-yielding assets. Further reductions of its equity and real estate portfolios are planned, and securitization of part of the non-performing loan book is also being considered. Preprovision profitability should improve as a result of the Group's revenue enhancing and cost cutting initiatives. Moody's said that Banca di Roma's efforts to boost non-interest income, which include rapid expansion of its asset management and bancassurance activities, should go some way towards offsetting the negative impact from contracting net interest margins, Moody's noted. An agreement with the principal trade unions operating at the Group has paved the way for the Group to achieve its targeted 15% reduction in personnel costs from 1996 levels, the rating agency added.
Moody's believes that overall recent developments have had a positive impact on Banca di Roma's overall creditworthiness. Nevertheless, in Moody's view, this remains substantially offset by the ongoing structural weaknesses of the Group. The Group's preprovision profitability remains weak, and is likely to be further pressured by the narrowing spreads characteristic of the current Italian banking environment. In Moody's view, slender core profitability reduces Banca di Roma's capacity to absorb the Group's large stock of non-performing loans. In this regard, the rating agency noted that non-performing loans, which currently represent some 15% of customer lending, are continuing to increase, if at a slower pace than previously, reflecting the slow pace of economic recovery in Banca di Roma's main markets in central Italy.
The following ratings were lowered:
Banca di Roma SpA -- the long-term deposit and senior debt ratings to A3, from A2; and the short-term deposit rating to Prime-2, from Prime-1.
Banca di Roma SpA (London) -- the long-term senior debt rating to A3, from A2; the subordinated debt rating to Baa1, from A3, and the short-term debt rating to Prime-2, from Prime-1.
The following rating was confirmed:
Banca di Roma SpA -- the bank financial strength rating of D+.
Banca di Roma SpA, headquartered in Rome, had total group assets of more than Lit 207 trillion (approximately US$ 118 billion) at December 1997.
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