Kommunalkredit Austria AG

The stable outlook reflects our expectation that, during the next 12-24 months, Kommunalkredit will be able to maintain sound earnings and asset quality, strong capitalization, and prudent lending and underwriting standards. We think the bank's current strategy and risk governance, including execution of the business pipeline, will not change under the incoming majority shareholder, Altor. We could lower our ratings on Kommunalkredit if the bank's loan portfolio deteriorated, with a subsequent rise of nonperforming assets and credit losses. Similarly, we could lower our ratings on Kommunalkredit if it adopted a more aggressive growth strategy that stretched its resources, or if material risks arose from higher risk taking within its loan syndication portfolio. Weakening profitability could also put pressure on the

...Balance between Kommunalkredit Austria AG's solid earnings and risks from its concentration in the niche business model. The bank's high returns rest on its extensive expertise in infrastructure, energy, and sustainable finance projects. Its strong profitability and the ability to syndicate up to 50% of its new business reduce the risks that stem from its small size and high revenue concentration. We anticipate ongoing strong new business inflow at attractive margins in green energy and social infrastructure in the next two years. We forecast Kommunalkredit will generate a favorable 12%-15% return on equity between 2024 and 2026. Kommunalkredit's internal and external capital generation is a strength. We expect the bank to maintain strong capitalization, with a risk-adjusted capital (RAC) ratio of 14.0%-15.0% over the next two years, after 14.5% at year-end 2023. We anticipate that Altor Funds (Altor) will become Kommunalkredit's 80% owner pending regulatory approval. It is likely that...

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