(Finance) – Fitch Ratings has improved ratings from Bank Monte dei Paschi di Siena, bringing the Long-Term Issuer Default Rating (IDR) to B+ from B and the Viability Rating (VR) to b+ from b. L’outlook improves from evolving to stable.
The upgrade “reflects the rstrengthening of capitalisation of the bank following the €2.5 billion capital increase completed in November 2022, which replenished adequate capital buffers with respect to regulatory requirements, and provides the Bank with resources needed to complete its restructuring planwhich also provides for a reduction in costs and important investments, reads the note from the rating agency.
The improvement of the rating “also considers the reduction of the stock of non-performing loans and a lower impact on capital of the portion not covered by the funds, thanks to the completion of the clean-up”. Fitch Ratings expects that “the cost reduction together with interest rate hikes will lead to higher and more sustainable levels of profitability, more than offsetting the impact of the expected deterioration of the operating environment in Italy in 2023″.
THE ratings may be downgraded if the bank fails to structurally improve profitability and its NPL ratio rises above expectations, resulting in a strong erosion of regulatory capital buffers, with no prospects for recovery in the near term. Pressure on ratings could also come from large unexpected cost items, such as pending lawsuits or bank restructurings.
A rating upgrade of MPS would require a combination of multiple factors, including the bank’s profitability reversal with an operating result consistently above 0.25% of risk-weighted assets (RWA), a non-performing loan ratio that remains below below 5% and a CET1 ratio in line with the MPS medium-term target of around 14%. An improvement in the rating would also depend on the bank restoring reliable market access for institutional funding, while maintaining stable customer funding.