Morningstar DBRS Confirms Istituto per il Credito Sportivo e Culturale S.p.A.'s Long-Term Issuer Rating at BBB, Positive Trend

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on Istituto per il Credito Sportivo e Culturale S.p.A. (ICSC or the Bank), including its Long-Term Issuer Rating of BBB and its Short-Term Issuer Rating of R-2 (high). At the same time, Morningstar DBRS confirmed the Bank's Long-Term Deposits credit rating at BBB (high), one notch above its Long-Term Issuer Rating. These credit ratings reflect the legal framework in place in Italy, which has full depositor preference in bank insolvency and resolution proceedings. The trends on the long-term credit ratings remain Positive. The Bank's Support Assessment is SA1, meaning that its credit ratings are driven primarily by Morningstar DBRS' expectation for support provided to the Bank by its main shareholder. A full list of credit rating actions is included at the end of this press release.

KEY CREDIT RATING CONSIDERATIONS
ICSC's Support Assessment of SA1 implies the expectation of predictable support from its main shareholder, the Italian government. Morningstar DBRS rates the Republic of Italy's (Italy) Long-Term Foreign and Local Currency - Issuer Ratings at BBB (high) with a Positive trend. (For more details on the rationale for the sovereign credit rating action, please refer to the press release titled "Morningstar DBRS Confirms Republic of Italy at BBB (high), Positive Trend" at https://dbrs.morningstar.com/research/452176.)

ICSC's Long-Term Issuer Rating is one notch below Italy's Long-Term Foreign Currency - Issuer Rating and Long-Term Local Currency - Issuer Rating. This implies that, despite the expectation of predictable support, there is no government guarantee or explicit commitment to maintain the Bank's capitalisation. Nevertheless, Morningstar DBRS expects support to ICSC from the Italian State to be forthcoming when the need arises because of the Bank's ownership and its strategic public mission. Morningstar DBRS also notes that, because of its ownership and the expectation of support, ICSC's credit ratings are positioned multiple notches above the entity's intrinsic creditworthiness. The Positive trends mirror the trend on Italy's long-term credit ratings.

CREDIT RATING DRIVERS
An upgrade of Italy's credit ratings would likely lead to an upgrade of ICSC's credit ratings. Also, an upgrade of ICSC's Long-Term Issuer Rating could be driven by the Italian government's explicit guarantee and commitment of support to the Bank.

A downgrade of ICSC's credit ratings would result from a downgrade of Italy's sovereign credit rating. In addition, any indication of a weakening of the commitment from the Italian government and/or a change of control in the Bank's ownership structure could also lead to a downgrade.

CREDIT RATING RATIONALE
ICSC, a small public bank with total assets of around EUR 3.8 billion at year-end (YE) 2024, is responsible for providing sustainable support to sport and culture in Italy. ICSC is a leader in the niche sector of financing Italian sporting facilities. Morningstar DBRS expects support to ICSC from the Italian State to be forthcoming in case of need, because of the Bank's ownership and its strategic public mission, which Morningstar DBRS deems to be the key pillars underpinning ICSC's credit ratings. Following the Bank's transformation into a joint stock company in July 2024, some private shareholders, representing around 9% of ICSC's share capital, have exercised their right of withdrawal from ICSC's ownership structure. As a result, the Italian State keeps 89.4% of ICSC's share capital, with 80.4% direct ownership through the Italian Ministry of Economy and Finance (MEF) and around 9% indirect ownership, while the remaining share is mainly composed of treasury shares. The Bank has appointed a new board of directors (BOD) since its transformation into a joint stock company, and as the main reference shareholder, the Italian State is represented on the BOD, with most members appointed by the government and other public shareholders, or by the MEF and the Ministry of Culture.

Morningstar DBRS views ICSC's earnings power as constrained by limited revenue diversification, low interest margins, weaker operating efficiency, and a cost of risk (CoR) that is higher, albeit reduced, than the domestic average. ICSC's revenue mix also shows some dependence on volatile profit sources, which is primarily related to its Italian sovereign bonds. ICSC reported a net profit of around EUR 4.5 million in 2024, down 53% year-over-year (YOY), mainly because of a realised loss to optimise the sovereign debt portfolio as well as higher operating expenses and loan loss provisions. The Bank's total revenues were up 2% YOY in 2024 as the higher contribution from financial operations despite the optimisation of the government debt securities portfolio, coupled with higher net fees, offset the pressure on the net interest income. This mainly resulted from faster repricing of the Bank's liabilities at higher interest rates than its assets, which are mostly fixed rate with long-term maturities. The Bank's operating efficiency deteriorated recently, reaching a cost-to-income ratio of around 70% in 2024 mainly because of higher headcount as well as the renewal of the banking labour contract, inflationary pressures, investments to support ongoing projects, and lower revenues. ICSC's CoR stood at 30 basis points (bps) in 2024, up from 8 bps in 2023 but still comparing favourably with the CoR levels reported prior to 2023.

In Morningstar DBRS' view, ICSC's risk profile, although still relatively weak, is improving because of organic workout activity, improved lending standards, and disposals. Sports-related loans still represent the lion's share of ICSC's loan book; however, the contribution from culture-related loans has increased over recent years. The Bank's gross and net nonperforming exposure (NPE) ratios were 8.6% and 3.5%, respectively, at YE2024, down from 9.6% and 4.3%, respectively, one year earlier, but comparing unfavourably with the Italian average. NPEs mainly arise from ICSC's exposure to the private sector; however, this accounts for a lower proportion of the Bank's loan book than exposure to the public sector. In addition, Morningstar DBRS notes that most of ICSC's loan portfolio benefits from public and bank guarantees. However, single-name concentration in ICSC's loan book does remain relatively high, albeit reduced, in Morningstar DBRS' view. Gross stage 2 loans (loans where credit risk has increased since origination), representing 23% of ICSC's gross loans at YE2024, remained stable YOY. While Morningstar DBRS anticipates new NPE inflows to increase going forward as a result of weaker economic prospects associated with trade tensions, asset quality risks are mitigated by the benefits ICSC's customers derive from loans at preferential rates, as well as the Bank's good loan workout ability, better-quality new loan volumes, and some credit expansion eased by lower interest rates and ICSC's participation in cofinancing opportunities connected with European funds.

ICSC maintains a large exposure to Italian sovereign bonds, which were up 1% YOY at YE2024 equivalent to around 24% of its total assets and 110% of its CET1 capital. In addition, 20% of the total portfolio is classified as held to collect (HTC), and the fair value of the HTC debt securities, including sovereign and nonsovereign, remained lower than their carrying value, although not as low as the value reported in the last few years.

Morningstar DBRS views ICSC's funding and liquidity profile as sound, with the Bank committed to reducing the concentration of its funding by counterparties while lengthening its maturity profile to reduce the mismatch with its assets. The Bank's funding structure benefits from the significant, albeit reduced, recourse to its shareholder funds and access to multilateral institutions, which have ensured higher and low-cost funding. ICSC tapped the capital markets twice in recent years and reduced its exposure to the European Central Bank in favour of bank repo transactions to improve diversification, optimise costs, and better manage the securities portfolio. The contribution from the special funds exclusively administered by ICSC on behalf of the Italian State has increased in recent years, enhancing its social mission. Since 2022, ICSC has collected retail time deposits in Germany through its partnership with Raisin SE, which represented 4% of its total funding at YE2024, up from around 1% at YE2023. ICSC's liquidity coverage ratio was 786% at YE2024, while its net stable funding ratio was 132%.

ICSC maintains a robust capital position driven by its high capital base and moderate capital-absorbing business model because of the high asset concentration in public sector clients, which receive low-risk weights, as well as the use of public guarantees. However, the Bank's internal capital generation remains modest. ICSC's regulatory own funds consist of CET1 capital only, with the CET1 as well as Tier 1 and total capital ratios all standing at 68% at YE2024, down from 70% at YE2023. This was mainly because of the share redemption to private shareholders after the Bank's transformation into a joint stock company, despite a reduction in risk-weighted assets. Notwithstanding the increase in its supervisory requirements, which Morningstar DBRS expects to increase further, ICSC's current level of capital ratios provides sizeable cushions over the minimum requirements of 12.1% for the CET1 ratio and 16.8% for the total capital ratio, including a Pillar 2 guidance of 3.5%.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
The following Social and Governance factors had a significant effect on the credit analysis: Pass-through Social and Governance credit considerations. The Social and Governance factors affect ICSC as the ESG factors for Italy are passed through to ICSC.

There were no Environmental factors that had a significant or relevant effect on the credit analysis.

Credit rating actions on Italy are likely to have an impact on this credit rating. ESG factors that have a significant or relevant effect on the credit analysis of Italy are discussed separately at https://dbrs.morningstar.com/issuers/17689.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025), https://dbrs.morningstar.com/research/454196.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (23 May 2025) https://dbrs.morningstar.com/research/454637. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings https://dbrs.morningstar.com/research/454196 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies

The sources of information used for this credit rating include Morningstar, Inc. and company documents. Other sources include ICSC 2020-2024 Annual Reports, ICSC 2023 Pillar 3 Report, and ICSC Bylaws (July 2024). Morningstar DBRS considers the information available to it for the purposes of providing this credit rating to be of satisfactory quality.

Morningstar DBRS does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' trends and credit ratings are under regular surveillance.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://dbrs.morningstar.com/research/455699.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Andrea Costanzo, Vice President - European Financial Institution Ratings
Rating Committee Chair: Marcos Alvarez, Managing Director - Global Financial Institution Ratings
Initial Rating Date: 2 August 2021
Last Rating Date: 4 November 2024

DBRS Ratings GmbH
Neue Mainzer Straße 75
D-60311 Frankfurt am Main
Tel. +49 (69) 8088 3500
Geschäftsführung: Detlef Scholz, Marta Zurita Bermejo
Amtsgericht Frankfurt am Main, HRB 110259

For more information on this credit or on this industry, visit https://dbrs.morningstar.com.