Hypo Tirol Bank's capitalization has strengthened in recent years owing to a faster-than-expected cleanup of its nonperforming assets and sound internal capital generation. Although the bank's risk-adjusted capital (RAC) ratio is now among the highest in the Austrian banking sector, we remain mindful of tail risks from economic uncertainties that could undermine the level and stability of its capital base. We expect Hypo Tirol's capitalization can counter moderate asset-quality deterioration linked to exposures to small and midsize companies operating in the regional tourism and services sector. We affirmed our 'A/A-1' issuer credit ratings on Hypo Tirol. The negative outlook continues to reflect risks to Hypo Tirol's creditworthiness amid its weak cost efficiency and low profitability, which are characteristics of the
