OREANDA-NEWS. Fitch Ratings has affirmed ICCREA Holding's (ICCREAH) Long-term Issuer Default Rating (IDR) at 'BBB' with Negative Outlook. Fitch has also affirmed ICCREA Holding's two main subsidiaries, ICCREA Banca and ICCREA Banca Impresa and assigned them common Viability Ratings (VRs) of 'bbb'. A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS - IDRS, VR AND SENIOR DEBT
ICCREAH's IDRs and VR are equalised with the common VRs of its two main subsidiaries, ICCREA Banca and ICCREA Banca Impresa, reflecting that although ICCREAH is a pure holding company, the ICRREA group (ie including all its subsidiaries) is regulated as a consolidated entity; capital and liquidity is fungible across the group's entities; that all entities share the same brand and operate in the same jurisdiction; and double leverage at around 120% at end-2013 remains moderate.

The common VRs reflect the ICCREA group's key role within the Italian mutual banking sector, for which it acts as the largest central institution. The group provides products and services to over 380 mutual banks (Banche di Credito Cooperativo; BCCs) mainly through ICCREA Banca Impresa, which supplies corporate loans to the sector's clients, and ICCREA Banca, which is the sector's main liquidity and funding provider, including access to ECB funding. The group benefits from the sector's strong franchise and from access to funding and capital from the BCCs.

Fitch assigns common VRs to ICCREA Banca and ICCREA Banca Impresa to reflect capital and funding fungibility within the ICCREA group; that the two main subsidiaries are part of the same group and have the common mission of serving the Italian mutual sector, albeit with different product and services; and that the management of the group is centralised at ICCREAH, meaning that individual credit profiles cannot be meaningfully disentangled.

The group's creditworthiness also reflects its sound capitalisation and liquidity, which compensate for its weak and deteriorating, asset quality and weak profitability.

ICCREAH's Fitch core capital ratio of 11.6% at end-September 2014 compares adequately with other large Italian rated banks and with international peers. This somewhat mitigates the high unreserved impaired loans to equity ratio by international comparison, which by Italian standards is moderate. Profitability is weak but the group has not reported a loss in the past few years, despite the difficult Italian economic environment, maintaining internal capital generation low but fairly stable.

Management is adequate overall, but the execution of strategic initiatives, such as the setup of an institutional guarantee fund, takes a long time. The group's relatively high loan growth in recent years compared with the Italian banking system average reflects a higher risk appetite. Asset quality is the groups' main weakness. Gross impaired loans reached a high 17.1% of gross loans at end-June 2014 and the coverage of impaired loans is lower than Italian peers, partly reflecting the high proportion of highly collateralised commercial leasing in its loan book.

RATING SENSITIVITIES -IDRS, VRs AND SENIOR DEBT
The Negative Outlook on the Long-term IDRs reflects pressure on the VRs as a result of ongoing asset quality deterioration.

Since the ratings are based on the ICCREA group's instrumental role for the mutual sector in Italy, any weakening of its importance, which Fitch does not expect, would put pressure on the VRs.

ICCREA Holding and its subsidiaries benefit from sound liquidity, which is strengthened by the BCCs placing their excess liquidity with ICCREA Banca. Any weakening of the group's liquidity profile would put pressure on the VRs.

The Long-term IDRs are at the same level as ICCREA Holding's Support Rating Floor. A downgrade of the IDRs and senior debt ratings of ICCREAH and its two main subsidiaries would occur only if both the Support Rating Floor was revised downwards and the VRs were downgraded.

KEY RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR
Fitch believes that the mutual banking sector, which has an aggregate market share of about 7% of loans in Italy, is of systemic importance domestically. ICCREAH's Support Rating of '2' and Support Rating Floor of 'BBB' reflect Fitch's view that there is a high probability that the ICCREA group would receive extraordinary support from the Italian authorities if needed. Additionally, Fitch believes that support for ICCREA Holding would be used to provide support for the sector banks if needed.

In Fitch's view, there is a clear intention ultimately to reduce implicit state support for financial institutions in the EU, as demonstrated by a series of legislative, regulatory and policy initiatives. We expect the EU's Bank Recovery and Resolution Directive (BRRD) to be implemented into national legislation by end-2015. We also expect progress towards the Single Resolution Mechanism (SRM) for eurozone banks in this timeframe. In Fitch's view, these two developments will dilute the influence Italy has in deciding how Italian banks are resolved and increase the likelihood of senior debt losses in its banks if they fail solvability assessments.

The Support Rating and Support Rating Floor are primarily sensitive to a weakening of sovereign support propensity due to progress in addressing effective bank resolution. Fitch expects sufficient progress to have been made for ICCREAH's Support Rating to be downgraded to '5' and for its Support Rating Floor to be revised downwards to 'No Floor' by mid-2015.

The Support Rating and Support Rating Floor are also sensitive to any change in Fitch's assumptions about the sovereign's ability (for example, triggered by a downgrade of Italy's sovereign rating) to provide support.


KEY RATING DRIVERS AND SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The subordinated debt and other hybrid capital issued by ICCREA Banca Impresa is notched down its VR in accordance with Fitch's criteria to reflect the different non-performance and relative loss severity risk profiles of these instruments. Their respective ratings have been affirmed and are sensitive to any change in the VR.

The subordinated (lower Tier 2) debt is rated one notch below the VR, to reflect above average loss severity risk of this type of debt when compared to average recoveries.

The Upper Tier 2 subordinated debt is rated three notches below the VR to reflect higher loss severity risk of these securities when compared to average recoveries (two notches from the VR) and high risk of non-performance risk (one notch).

The rating actions are as follows:

Iccrea Holding S.p.A.
Long-term IDR: affirmed at 'BBB'; Outlook Negative
Short-term IDR: affirmed at 'F3'
VR: affirmed at 'bbb'
Support Rating: affirmed at '2'
Support Rating Floor: affirmed at 'BBB'

Iccrea Banca S.p.A.
Long-term IDR: affirmed at 'BBB'; Outlook Negative
Short-term IDR: affirmed at 'F3'
VR: assigned at 'bbb'
Support Rating: affirmed at '2'
EUR5bn EMTN Programme: affirmed at 'BBB'/'F3'
Senior unsecured debt: affirmed at 'BBB'

Iccrea BancaImpresa
Long-term IDR: affirmed at 'BBB'; Outlook Negative
Short-term IDR: affirmed at 'F3'
VR: assigned at 'bbb'
Support Rating: affirmed at '2'
Senior unsecured debt and EMTN Programme: affirmed at 'BBB'
Subordinated notes (ISIN XS0222800152 and XS0287519663): affirmed at 'BBB-'
Subordinated upper Tier 2 notes (ISIN XS0295539984): affirmed at 'BB'