Kommunalkredit Austria AG

The stable outlook reflects our expectation that, in the next 12-24 months, Kommunalkredit will maintain sound earnings and asset quality, strong capitalization, and prudent lending and underwriting standards. We think the bank's strategy and risk governance, including execution of the business pipeline, will not change under the 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 the bank if it adopted a more aggressive growth strategy that stretched its resources, or material risks arose from higher risk-taking within its loan syndication portfolio. Weakening profitability could also put pressure on the ratings. An upgrade is unlikely over

...Kommunalkredit Austria AG's solid earnings performance balances risks from its concentrated loan portfolio. The bank's high returns rest on its extensive business expertise in infrastructure, energy, and public finance. In 2024, Kommunalkredit reported a record-high 2.3 billion of loan volume in these sectors, achieving a loan portfolio of 5.7 billion. Its strong risk-adjusted profitability and the ability to syndicate up to 50% of its new business reduces the risks from its small size and high revenue concentration, in our view. We think the bank will capitalize on megatrends such as the green transition, energy security, and digitalization over the next five years. We forecast Kommunalkredit will generate a favorable 10%-12% return on equity from 2025-2027, outperforming its peer group. The bank's capital and earnings generation is a key rating strength. The capital injection of 100 million from new majority shareholder Altor Funds, which holds an 80% ownership stake, has lifted Kommunalkredit's...

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