OREANDA-NEWS. Fitch Ratings has affirmed UniCredit Credit Management Bank S.p.A.'s (UCCMB) Italian residential and commercial mortgage special servicer ratings at 'RSS1-' and 'CSS1-', respectively.

UCCMB manages impaired loans on behalf of its parent UniCredit S.p.A. (Unicredit, BBB+/Negative/F2) and some third parties, providing UCCMB with extensive market coverage and breadth of experience, which are reflected in the affirmation.

As of end-June 2014, UCCMB was servicing EUR41.044bn of non-performing loans (NPL), comprising 714,196 loans compared with EUR45.256bn and 851,210 loans as of end-December 2013. The current assets under management (AUM) includes 15 securitised transactions comprising 33,746 loans, totalling EUR5bn.

A business transformation programme at Unicredit has resulted in UCCMB's portfolio reducing since Fitch's previous review. As part of the plan, UCCMB will manage the recovery activity on new loans with a value of less than EUR1m. The servicer will maintain the management of existing stock of less than EUR8.5m, whilst loans with a value above this amount have been transferred back to the parent company, resulting in the lower AUM. Nevertheless, AUM remains the largest managed in Italy compared with other Fitch-rated servicers.

In addition, another portion of UCCMB's owned portfolio was unbundled to UniCredit through the issuance of a securitisation backed by the NPLs deemed no longer core for UCCMB's business. However, the process had no impact on the AUM, as UCCMB continues to service these loans through a sub-mandate from Unicredit.

UCCMB benefits from the financial strength of its parent. Fitch has conducted stress tests on the financial condition element of the servicer rating and believes the servicer rating could withstand a potential downgrade of up to two notches of Unicredit's rating.

Fitch is aware that negotiations are currently ongoing for the potential sale of UCCMB and will assess the impact and any potential rating action if necessary, once the sale is formalised and more details are disclosed.

In the past two years, UniCredit Credit Management Immobiliare (UCCMI), a wholly owned subsidiary of UCCMB focusing on the management of real estate, expanded its operations by offering new services to specifically benefit parties interested in buying distressed real estate assets. The additional services focus on optimising debt recovery, by assisting the potential asset buyer in the court proceedings or providing lateral services aimed at improving the quality of the assets.

In line with these services, UCCMB worked in collaboration with the Italian Ministry of Justice and local courts to help streamline the judicial process by implementing more automation. Supportive training in managing the actions necessary for the completion was provided in co-ordination with local Courts of Appeal staff and representatives of the district's legal associations across Italy.

In line with the trend seen in Fitch's previous review, the overall average recovery rate against gross book value (GBV) continues to deteriorate, decreasing to 51.2% as of end-June 2014 from 53.6% of end-2013 and 59.1% of end-2012. However, the data remains comparable with other Fitch-rated peers and reflects the ongoing challenges of the Italian NPL market in terms of recovery management.

UCCMB has recently completed a business restructure. Some internal functions and processes have been re-organised to be more aligned with the core servicing business and to comply with the Bank of Italy and the ECB supervisory regulations. In particular, there have been changes to the internal control system and the IT platform.

In order to comply with its supervisory institutions, an internal control team was established to represent an additional level of operational controls on the bank's core processes. The team reports directly to the chief executive officer. Fitch views the establishment of the internal control team positively, as it complements the existing robust internal auditing and compliance framework.

The ratings reflect UCCMB's continuous investment in its technology platform. During 2014, a series of actions were implemented to improve data confidentiality and web privacy as part of a process to comply with a revised regulatory environment. In addition, over the past 12 months, specific IT systems have been delivered to simplify the management of invoices, incoming and outgoing correspondence (both paper and e-mail) and to centralise the management of legal expenses funds and create efficient business plans.

UCCMB continues to provide market-leading support to its external legal resources. In October 2014, it implemented specific credit risk dashboards to its management system interface (displaying recovery rate and expected collection data), which has helped enhance the decision-making process for external professionals. UCCMB's web platform was also improved, with training courses dedicated to the external network. Additionally, in 1H14, the servicer completed a survey with external professionals aimed at understanding the satisfaction level with the bank and to try and improve the quality of the business relationships.

Fitch employed its global servicer rating criteria in analysing the servicer's operations and financial condition, with the former including a comparison against similar Italian servicers as part of the review process. The analysis is based on information provided to Fitch by UCCMB.