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