mBank S.A.

The developing outlook indicates that we may raise, lower, or affirm the ratings over the next 12-24 months. It reflects diverging trends for mBank over the next two years. On the downside, these material risks stem from the legacy CHF-denominated-portfolio litigation and a negative industry risk trend. On the upside, we consider the anticipated buildup of ALAC to meet subordinated MREL targets. We could revise down the 'bbb' stand-alone credit profile (SACP) and lower all our ratings if additional costs from litigation related to CHF-denominated loans or government initiatives materialize, or if mBank's asset quality deteriorates more than we expect, for instance, because of a materially weaker economic forecast, preventing the expected recovery in capital ratios. We could also downgrade

...A ruling by the European Court of Justice, expected on June 15, could indicate higher costs to mBank. The advocate general's opinion, published Feb. 16, 2023, was that Polish banks should not be allowed to receive remuneration for the use of capital if a loan was declared invalid by a local court. If this stance is confirmed in a final ruling and implemented by Polish courts, this would lead to additional costs for mBank. In its current provisioning model for legal risks related to Swiss-franc (CHF)-denominated loans, the bank assumes it will receive remuneration for 70% of the loans declared invalid, which would need to be adjusted. In addition, increasingly favorable rulings for customers would likely result in even more borrowers starting the legal process. This worst-case scenario would mean several billion Polish zloty (PLN) of additional legal risk provisions but these would likely accrue over time and, in our view,...

Full Report