...IDRs Reflect Standalone Profile: The ratings of Unione di Banche Italiane S.p.A. (UBI) reflect its respectable domestic franchise as a second-tier bank, particularly in northern Italy, and adequate funding and liquidity. The Negative Outlook reflects its entire capital being at risk from unreserved impaired loans, and modest earnings. Asset-Quality Deterioration Continues: UBI's impaired loans were close to 15% of gross loans at end-1H16. This is still below the average for the domestic sector, reflecting UBI's operations in wealthy northern Italy and its adequate underwriting policies, but is weak by international standards. Net inflows of new problem loans slowed significantly at end-1H16, when they declined by 47% yoy. Gross doubtful loans are rising while some Italian peers have already experienced small reductions. The stock of gross unlikely-to-pay loans contracted. Improved Impaired Loan Coverage: UBI has substantially increased the coverage of impaired loans, to 39.6% at end-1H16...
