Hypo Tirol Bank AG

Hypo Tirol's funding and liquidity profile is in line with the industry average and well managed in our view, owing to the benefits of state ownership (which fosters investor confidence and deposit stability), as well as its adequate liquidity buffers, and access to capital markets to issue debt instruments. The negative outlook on Hypo Tirol Bank AG reflects S&P Global Ratings' view that risks to the Austrian banking sector's stability might increase amid persistent structural profitability issues over the next two years. We anticipate that Hypo Tirol's earnings buffer will remain relatively meager in the medium term, reflecting stress on interest revenue and investment needs to improve efficiency and digitalization. We believe management's digitalization strategy needs to further progress to

...We expect Hypo Tirol to benefit from economic recovery, thanks to its leading franchise in corporate and retail banking in Tyrol. In our view, the bank is likely to maintain its regional competitive edge thanks to its franchise in Tyrol (its home market) remaining solid against the difficult, but easing, economic risks caused by the pandemic and the associated containment measures. We acknowledge Hypo Tirol's strengthened risk management and governance, and solid credit loss track record due to the successful restructuring and the improved and more stable financial, capital, and risk metrics over recent years. Accordingly, we forecast Hypo Tirol's risk cost (to customer loans) will improve to about 20-30 basis points (bps), and nonperforming loan (NPL) levels to decline to 2.3%-2.6%, supported by the recovery of the Austrian economy. We are mindful, however, that Hypo Tirol's earnings, asset quality, and capitalization remain vulnerable to the rapid deterioration of economic conditions...

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