Kommunalkredit Austria AG

The positive outlook reflects our expectation that Kommunalkredit's new owner will fully support the continuance of the bank's existing business and risk strategy over the next 12-24 months. In particular, we expect Kommunalkredit to maintain its double-digit RoE, while retaining its sound risk appetite and asset quality, and robust capitalization. Similarly, we anticipate that Kommunalkredit will continue to further improve its management and control capabilities consistent with its growth trajectory. We could raise our rating on Kommunalkredit over the next 24 months, if the bank shows similar or higher-than-anticipated earnings performance and sound asset quality demonstrating outperformance of higher rated, more diversified banking peers. In addition, we would also need more confidence that Altor will fully fund and support Kommunalkredit's

... niche business model balances risks from its high concentrations. Kommunalkredit's niche business model rests on its strong expertise in infrastructure, energy, and sustainable finance projects, as well as its ability to syndicate up to 50% of its new business. We believe this balances the risks stemming from its small size and high revenue concentration, along with its high dependence on key personnel. We anticipate ongoing strong new business inflow at attractive margins in green energy and social infrastructure. We forecast Kommunalkredit will generate a favorable 10%-13% return on equity (ROE) between 2023 and 2025, after 19.9% in 2022 that was partly boosted by the acquisition of a discounted bank portfolio. We expect Kommunalkredit's internal and external capital generation capacity to remain strong. We expect Kommunalkredit to maintain strong capitalization, with a risk-adjusted capital (RAC) ratio of 13%-14% over the next two years,...

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