OREANDA-NEWS. Fitch Ratings has affirmed Banca Nazionale del Lavoro's (BNL) Long-Term Issuer Default Rating (IDR) at 'A-' and Viability Rating (VR) at 'bbb-'. The Outlook on the Long-Term IDR is Stable. A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS - IDRs, SENIOR DEBT AND SR
BNL's IDRs and Support Rating (SR) reflect institutional support from its parent, BNP Paribas (A+/Stable). Fitch considers BNL as core to BNP Paribas' strategy as Italy is considered a home market for the French group. BNL's IDRs and SR are capped at one notch above Italy's sovereign rating (BBB+/Stable). This reflects the agency's view that BNP Paribas' propensity and ability to support BNL is linked to Italy's operating environment, since the latter affects the subsidiary's performance and prospects and ultimately determines its attractiveness for the group and impacts the group's financial profile.

RATING SENSITIVITIES - IDRs SENIOR DEBT and SR
BNL's IDRs and SR are sensitive to changes in BNP Paribas' ability and propensity to provide support to its subsidiary, and to changes in Italy's sovereign rating.

A downgrade of BNP Paribas' IDRs would only affect BNL's IDRs and SR if the parent's Long-term IDR was downgraded by more than two notches as BNL's Long-term IDR is currently constrained at one notch above Italy's sovereign rating. A strong reduction in BNL's strategic importance for its parent, which Fitch currently does not expect, would also place the IDRs and SR under pressure. BNL's Short-term IDR would come under pressure if there were signs of weakening short-term liquidity support from its parent, which Fitch currently does not expect. Given the current notching Fitch applies between BNL's IDR and Italy's sovereign rating, BNL's IDRs and SR would also be sensitive to a downgrade of Italy's rating.

KEY RATING DRIVERS - VR
BNL's 'bbb-' VR primarily reflects its weak asset quality and just acceptable capitalisation. Asset quality continued to deteriorate in 2014 with impaired loans accounting for a high 16% of gross loans. These were 56% covered by reserves, and the ECB Asset Quality Review had a very moderate impact in terms of additional loan impairment charges (LICs) compared with other Italian banks. The Fitch core capital (FCC) and CET1 ratios at end-2014 stood at an acceptable 10.8% and 10.5%, respectively, but capital encumbrance is very high with unreserved impaired loans accounting for almost 90% of FCC.

The VR also reflects BNL's weak operating performance. The bank reported an operating loss of EUR40.6m in 2014 (0.7% of average equity) and a net loss of EUR101.7m largely due to EUR1.17bn of LICs, which entirely eroded BNL's pre-impairment operating profit (EUR1.13bn). BNL's liquidity benefits from ordinary support from its parent and is consistently sound, and market risk exposure is low.

RATING SENSITIVITIES - VR
BNL's VR would come under pressure if there is a further asset quality weakening and/or losses eroding capitalisation or its quality. An upgrade of BNL's VR would require a marked improvement of asset quality with the reduction in the stock of unreserved impaired loans and a sustainable turnaround in profitability.

The rating actions are as follows:

Long-term IDR: affirmed at 'A-'; Outlook Stable
Short-term IDR: affirmed at 'F1'
VR: affirmed at 'bbb-'
SR: affirmed at '1'
Senior debt: affirmed at 'A-'