Kommunalkredit Austria AG

The stable outlook reflects our expectation that Kommunalkredit will continue to report strong profits and that its business will remain highly resilient to the adverse economic environment over the next 24 months. Moreover, we anticipate that Kommunalkredit will gradually build its franchise and originate-to-collaborate business model in the infrastructure and energy financing markets, while maintaining high capitalization. We also expect there will be enhancements in both Kommunalkredit's governance and the broader control environment as the bank grows. We could lower our rating on Kommunalkredit if the bank experienced a material deterioration in its risk-adjusted profitability or asset quality, or if a delayed economic recovery adversely affected Kommunalkredit's key markets. Similarly, we could lower the rating if Kommunalkredit failed to professionalize

...Kommunalkredit's high earnings and well managed niche business model balances its high concentrations amid difficult operating conditions from the COVID-19 pandemic and from the Russian-Ukraine conflict. Despite difficult markets we forecast Kommunalkredit will generate a favorable 10%-13% return on equity (ROE) between 2022 and 2024, after 13.3% in 2021, aided by strong business growth and robust asset quality. We think Kommunalkredit's robust niche business model rests on its strong expertise in infrastructure, energy, and sustainable finance projects, serving as an intermediary between institutional investors and the public sector. We believe this is balanced by the bank's small size and high revenue concentration, along with its high dependence on key personnel, that make it more sensitive to potential adverse economic scenarios than peers. However, Kommunalkredit has almost no exposure to Russia, Ukraine, or Belarus. We anticipate ongoing strong new business inflow at attractive margins...

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