Fitch Affirms Italy's Banca Nazionale del Lavoro On 2004 Results.

MILAN, Italy -- Fitch Ratings, the international rating agency, has today affirmed the ratings for Italy's Banca Nazionale del Lavoro (BNL) at Long-term 'BBB+', Short-term 'F2', Individual 'D', and Support '2', following the release of its 2004 results. The Outlook is Stable.

"BNL is making progress in implementing its restructuring plan. It has reduced its overall risks, strengthened its capital base, and improved its cost efficiency. However, some work remains as revenue generation is likely to remain a challenge in a competitive market," said Matthew Taylor, Senior Director of Financial Institutions at Fitch.

BNL announced a net loss of EUR94 million before minorities and appropriations for 2004 compared with positive net income of EUR77 million reported in 2003. The loss related to a substantial increase in loan loss provisions, which caused the bank to report negligible operating profit. The increase arose from management's decision to strengthen loan loss reserves for doubtful and watch-list loans. However, the bank's restructuring also had some negative effect on pre-provision operating profit, which declined by around 10% in 2004. Net interest revenue fell as a result of narrower interest rate spreads and the planned re-composition of the loan book. In the final quarter of the year, however, net interest revenue showed promising signs of growth. Net commission income remained at the same level as that of 2003, supported by growth in the sale of bancassurance products. Overheads continued to decline, as the bank cut 549 staff members. Taxes and negative extraordinary items contributed to the bank's reporting a loss of EUR30 million before minority interests, from which Fitch, as part of its reclassification of accounts, deducts the bank's EUR64 million release from its fund for general banking risks. For 2005, Fitch expects BNL to report a stronger if still unremarkable underlying performance.

Stronger loan loss reserves raised cover of gross doubtful loans to 56%, which is similar to domestic peers', but is still smaller than international peers'. While the large proportion of loans secured on mortgages may enable the bank to post weaker reserve cover, Fitch considers that the bank is likely to need to strengthen further loan loss reserves to comply with the introduction of International Financial Reporting Standards in 2005. Despite the improvement, BNL's asset quality remains burdened by its large stock of net doubtful loans, which, at the end of 2004, amounted to EUR2 billion, equal to a still high 38% of the bank's equity (2003: 55%). BNL has confirmed its plans to sell a portion of its portfolio of impaired loans during the year.

The bank is continuing to restructure its activities according to its November 2003 industrial plan, changing the composition of its lending portfolio and improving its cost efficiency. It continues to concentrate on domestic retail customers and medium-sized enterprises while reducing its exposure to international large corporates and diminishing its overall credit risk appetite. BNL's domestic loan portfolio grew by 10% (before taking into account of securitisations) allowing the bank to strengthen its market share to around 5% of domestic lending. BNL successfully sold some of its non-strategic participations. In addition, it decreased its presence in Latin America with the disposal of BNL Brazil and has recently reached an agreement for the sale of its activities in Argentina. In December 2004, BNL strengthened its capital base by raising around EUR1.2 billion of fresh capital so that at the end of 2004 its Tier 1 ratio reached a good 7.7% (2003: 6.2%). The increased capital should allow the bank to develop its commercial activity further and ensure a better cushion against risks.

Note to Editors: Fitch Ratings' Support and Individual Ratings for Banks

Fitch's Individual ratings assess how a bank would be viewed if it were entirely independent and could not rely on external support. Its Support ratings deal with the question of whether a bank would receive support from its owners or from the state if it were to get into difficulty. These ratings are not debt ratings but rather, respectively, an assessment of the intrinsic strength of a bank and of any level of outside support that may, or may not, be available to it.