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Rating Action:

Moody's assigns Ba1 first-time issuer rating to Banca Farmafactoring with positive outlook

02 Oct 2019

Assigns BCA of ba3 and long-term deposit rating of Baa3

Paris, October 02, 2019 -- Moody's Investors Service ("Moody's") today assigned the following first-time ratings and assessments to Banca Farmafactoring S.p.A. (BFF): a standalone Baseline Credit Assessment (BCA) of ba3; deposit ratings of Baa3/Prime-3; a long-term issuer rating of Ba1; Counterparty Risk Ratings (CRRs) of Baa3/Prime-3 and Counterparty Risk Assessments (CR Assessments) of Baa3(cr)/Prime-3(cr). The outlook on BFF's long-term deposit ratings and issuer rating is positive.

A full list of assigned ratings and assessments can be found at the end of this press release.

RATINGS RATIONALE

-- BCA

BFF's BCA of ba3 reflects the bank's activities mostly in factoring receivables from public administration bodies. While BFF's main market is still Italy, the chartered bank aims to diversify its geographical footprint throughout Europe including Spain, Portugal, Poland, Czech Republic, Slovakia, Greece, and Croatia. While BFF will remain a "monoline" centered on factoring of receivables towards the public sector, it aims to diversify the range of products, for example by extending loans, which may generate new risks. The BCA reflects the bank's sound asset risk, strong profitability, modest capitalization, high reliance on wholesale funding and high asset encumbrance. The BCA also takes into account the bank's rapid growth both through acquisitions and organically in Italy and in foreign markets in Europe, as well as the bank's narrow business focus.

Moody's considers BFF's asset risk to be sound, with a reported gross problem loans ratio of just above 3% at end-June 2019. The bulk of BFF's exposures are to public sector entities, mostly commercial receivables which Moody's considers to be of higher quality than most corporate lending. The recovery rate from loans classified as non-performing is high given that public entities eventually repay their debt yet with delays. It is also reflected in the low level of credit cost reported by the bank in 2018 (15 basis points).

BFF has good internal capital generation with a reported net profit of €38 million in 1H19, equivalent to a Moody's-calculated net income to tangible assets ratio of 1.7%, but fast loan growth, high risk weight on its loans to public administration (100%), and high dividend distributions (100% payout ratio in 2018) have led the CET1 ratio to gradually decrease over recent years to 11.6% at end-June 2019 from a much higher 27% in 2014. The total capital ratio of 16.1% at end-June 2019 includes €100 million Tier 2 debt issued by the bank in 2017. BFF is committed to maintaining its total capital above 15% and would curtail lending and cut dividends if this ratio were to fall below this threshold. BFF's main sources of revenue come from the discount applied on purchased receivables and the late payment interest (LPI) charged to the public administration.

BFF is primarily wholesale funded, with around €2.5 billion of drawn credit lines from financial institutions and repurchase agreements; and €550 million of bonds issued to institutional investors. This results in a high market funds to tangible banking assets ratio of above 60% at end-June 2019. Meanwhile the bank has been developing its online deposit gathering, with funds of €879 million in June 2019. Most of BFF's liquid assets are financed via secured transactions and hence encumbered, but the bank's liquidity benefits from the availability of committed credit lines from several financial institutions, and the bank reported a Liquidity Coverage Ratio (LCR) of 499% and Net Stable Funding Ration (NSFR) of 107% at end-June 2019.

-- DEPOSITS AND ISSUER RATING

The bank's long-term Baa3 deposit and Ba1 issuer ratings reflect the ba3 BCA, as well as extremely low and very low loss-given-failure respectively in a resolution scenario, according to Moody's advanced Loss Given Failure (LGF) analysis, driven by the relatively high volume of senior unsecured debt and the moderate level of subordinated debt outstanding. This results in an uplift of three notches for deposit rating and two notches for issuer rating from the bank's BCA.

Moody's assessment of a low probability of government support for BFF does not result in any further uplift to the ratings.

OUTLOOK

The positive outlook on BFF's long-term deposit ratings and issuer rating reflects the possibility for a higher BCA and higher ratings should BFF sustain its fundamentals at current levels, which entails amongst other things maintaining its Common Equity One (CET1) at or above its current level.

WHAT COULD MOVE THE RATINGS UP

BFF''s BCA could be upgraded following sustained evidence of sound profit generation whilst maintaining sound asset risk and sound capital ratios. The BCA would also benefit from a funding profile less reliant on wholesale funding and stronger liquidity. An upgrade of the BCA would likely lead to an upgrade of BFF's deposit ratings and issuer rating.

BFF's issuer rating could also be upgraded following a material increase in the bank's stock of subordinated debt.

WHAT COULD MOVE THE RATINGS DOWN

Given the positive outlook, a downgrade is unlikely. However, BFF's BCA could be downgraded if the stock of problem loans increased materially and led to material losses that would erode capitalisation and if its liquidity profile weakened. A downgrade of the BCA would lead to a downgrade of BFF's deposit ratings and issuer rating.

LIST OF AFFECTED RATINGS

Issuer: Banca Farmafactoring S.p.A.

..Assignments:

....Long-term Counterparty Risk Ratings, assigned Baa3

....Short-term Counterparty Risk Ratings, assigned P-3

....Long-term Counterparty Risk Assessment, assigned Baa3(cr)

....Short-term Counterparty Risk Assessment, assigned P-3(cr)

....Long-term Bank Deposits, assigned Baa3 Positive

....Short-term Bank Deposits, assigned P-3

....Long-term Issuer Rating, assigned Ba1 Positive

....Baseline Credit Assessment, assigned ba3

....Adjusted Baseline Credit Assessment, assigned ba3

Outlook Action:

Outlook assigned Positive

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Fabio Ianno
VP - Senior Credit Officer
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Nicholas Hill
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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