mBank S.A.

Our negative outlook on mBank is based on our view that the risks stemming from the Swiss franc legacy loans litigation costs could undermine mBank's capitalization. We could lower the ratings on mBank if risks from litigation related to the Swiss franc-denominated loans materialized, or if mBank's asset quality were to deteriorate more than we expect in the next two years, bringing its risk-adjusted capital (RAC) ratio below 10%. We could also downgrade mBank if we perceived an increase in industry risk for Poland's banking sector over the next 12-24 months. We could revise the outlook to stable in the next two years if: We perceived receding risks to the stability of the banking system; and mBank's capital buffer appeared

...mBank S.A. is among the digital banking leaders in Poland, and we expect it to increase its market share. The bank particularly benefits from its sound market position with young and digitally savvy retail customers and a cost-efficient operating model. We think mBank's portfolio of legacy foreign-currency mortgage loans exposes the bank's earnings and capitalization to significant, predominantly litigation-related risk. In our view, there is a tail risk that court decisions could lead to a material hit to the bank's capitalization, and we expect to receive more clarity on that matter in 2022. We expect mBank will continue to benefit from a balanced funding profile and sound metrics. We think the bank's funding base will continue to predominantly comprise deposits. This will be supplemented with selective wholesale issuances including covered bonds, with no reliance on parental funding....

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