Fitch upgraded obbligazioni bancarie garantite of Banca Monte dei Paschi di Siena (Banca MPS) by four notches to A+ today (Friday), after upgrading the Italian bank on the back of a recapitalisation plan and expected improved asset quality, and taking into account a methodology update.

In July, it was confirmed that Banca MPS would be recapitalised through a Eu3.9bn capital injection from the Italian state and a Eu4.3bn capital increase from the conversion of junior and subordinated debt into equity. As part of a five year restructuring and recapitalisation plan, the bank also outlined its intention to dispose of Eu28.6bn of non-performing loans.

Fitch therefore upgraded Banca MPS from B- to B, on stable outlook, last Friday. Its Issuer Default Rating (IDR) had previously been on Rating Watch Evolving.

“The upgrade is based on Fitch’s expectation that after being recapitalised, the bank will dispose of over Eu28bn doubtful loans (sofferenze), primarily through a securitisation transaction,” said Fitch. “The upgrade also reflects Fitch’s expectation that the European Central Bank will continue to regard the bank as fully meeting solvency requirements.

“The upgrade therefore reflects the bank’s stronger capitalisation, improved asset quality as a result of the deconsolidation of its doubtful exposures and significantly lower pressure on capital from net impaired exposures.”

Following the upgrade of Banca MPS’s Issuer Default Rating (IDR), Fitch upgraded the bank’s conditional pass-through mortgage covered bonds from BBB to A+ today. The bonds were removed from RWE and placed on stable outlook.

While Banca MPS OBGs were on RWE, Fitch in October updated its covered bond rating methodology, resulting in positive rating actions on some peripheral Italian programmes, and Banca MPS has now benefited from this as well as the IDR upgrade.

“After the RWE resolution on the bank’s IDR, Fitch is now factoring in the full uplift derived from the implementation of the Covered Bonds Rating Criteria – namely the IDR uplift, the PCU and the recovery uplift,” said the rating agency.