Hypo Vorarlberg Bank AG

The negative outlook reflects our view that industry risk could increase for the Austrian banking sector, including Hypo Vorarlberg, following structural profitability strains in the coming two years. We could lower our long-term rating on Hypo Vorarlberg by one notch if: We concluded that industry risk had increased in Austria, which would lead us to revise our anchor for Austrian banks to 'bbb+' from 'a-'; or We projected the bank's RAC ratio to drop sustainably below 10%, contrary to our current expectations. We would also likely lower the ratings if we lowered the ratings on the State of Vorarlberg. Although less likely, a change in Hypo Vorarlberg's role for or link with the state could also lead us to reassess

...Our rating on Hypo Vorarlberg Bank AG (Hypo Vorarlberg) reflects its solid franchise in its core region of Vorarlberg. We expect that the bank will maintain its cost-efficient, leading franchise in corporate and retail banking in Vorarlberg, which we consider the bank's key rating strength. That said, we think that Hypo Vorarlberg's relatively small size and geographical concentration make it vulnerable to swings in the regional economy. Hypo Vorarlberg has performed relatively well despite the volatile operating environment, highlighting its prudent risk management approach and resilient customer base. In addition, the bank has no direct exposure to Russia, Ukraine, or Belarus. However, we expect that indirect knock-on effects on the regional economy, for example higher energy and commodity prices, will affect clients' repayment capacity and lead to some asset quality metrics deterioration. The bank's solid collateralization and sound management of its mortgage loan book are positive rating...

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