Aktia Bank PLC

The stable outlook indicates that we expect Aktia to preserve a sound financial position, underpinned by strong risk-adjusted capitalization and prudent capital management, over the next two years, and to build up a material bail-in-able buffer consisting of senior nonpreferred and Tier 2 capital instruments that would provide protection to senior debtholders in a resolution scenario. We expect the bank to continue building and maintain an additional loss-absorbing capacity (ALAC) buffer sufficiently above our adjusted threshold of 4%. Clarity about Aktia's potential subordination requirement on its minimum requirement for own funds and eligible liabilities could further strengthen its ALAC buffer. We could lower the rating if the bank's asset quality and earnings come under greater pressure than we currently expect,

...We expect sound earnings generation will continue to support Aktia's strong capitalization over the next two years. We view Aktia's earnings capacity and capital position as a rating strength and project its risk-adjusted capital (RAC) ratio will remain stable at 11.5%-12.5% over 2023-2024, from 11.8% as of Dec. 31, 2022. Our projections are based on materially improving net interest margins as the bank's loan book--predominantly tied to 12-months Euribor, is repriced--only partially offset by rising cost pressures, including cost of risk, and expected dividend payouts of 60%-80% of net profits. Aktia's expanded wealth management franchise has increased the diversification of its revenue mix and provides cross-selling opportunities. We expect Aktia's growing wealth management operations will be a key driver of growth and a crucial factor for the bank in durably improving its moderate operating efficiency--with the cost-to-income ratio...

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