March 3, 2017 / 4:07 PM / 7 months ago

Fitch Upgrades Two Austrian Banks After Sector Review

(The following statement was released by the rating agency) LONDON, March 03 (Fitch) Fitch Ratings has concluded its periodic review of three large Austrian banks, upgrading the Long-Term Issuer Default Ratings (IDRs) and Viability Ratings (VRs) of Erste Group Bank (to A-/Stable/a- from BBB+/Stable/bbb+) and Volksbanken-Verbund (to BBB-/Positive/bbb- from BB+/Positive/bb+) and affirming the ratings of UniCredit Bank Austria at 'BBB+'/Negative/'bbb+'. The rating actions reflect primarily the strengthening of the banks' risk profiles, driven by considerable restructuring progress achieved until end-2016 amid a benign economic environment in Austria. The upgrade of Erste's ratings reflects the bank's active balance sheet clean-up at its weaker central and eastern European (CEE) operations. We expect that the improved economic prospects across most of the bank's core EU CEE markets and the recovering performance of the bank's Romanian and Hungarian operations will result in higher and more balanced profit generation as profit contributions from the strong Czech and Slovakian units and lower-margin domestic operations should remain broadly stable. Volksbanken-Verbund's upgrade is driven by greatly reduced execution risk due to the group's well-executed and largely-completed restructuring programme. The resulting more robust risk infrastructure and more coherent management practices strengthen the group's risk profile and business model. We expect the streamlined group structure to enable a gradual improvement of revenue generation and cost efficiency in the medium term. The affirmation of Bank Austria's ratings reflects the bank's considerably reduced risk appetite and much improved asset quality following the transfer of the CEE business to parent bank UniCredit S.p.A. (BBB+/Negative/bbb+) in 4Q16. The Negative Outlook mirrors that of UniCredit as we expect that capital will become increasingly fungible within the UniCredit group. This could constrain Bank Austria's financial flexibility as the bank works to realign its business model. For the overall Austrian banking sector, we expect earnings to broadly stabilise in 2017 as restructuring costs have largely been provisioned for and impairment charges are likely to remain close to their cyclical lows. In light of the recurring margin pressure in the saturated and highly competitive Austrian market, cost control and pricing discipline are key to mitigating earnings erosion from a low interest rate environment in the medium term. While the sector is generally increasing its focus on addressing its high fixed costs in its home market, the sector could benefit from pricing discipline and reduction of over-capacity. We expect that Erste's and Bank Austria's capitalisation will no longer improve significantly as the banks have reached their target capitalisation, and we expect that rising dividend payouts should mark the end of several years of focus on profit retention driven by profit pressure in CEE and increasing regulatory requirements. However, internal capital generation will remain a key focus at Volksbanken-Verbund in light of its commitment to accelerating the repayment of the capital injected by the Austrian government in 2009. The solid and resilient funding profiles of the three banks continue to benefit from their established domestic deposit franchises. The rating actions commentaries published today on the three banks are available at www.fitchratings.com. Contact: Patrick Rioual Senior Director +49 69 768 076 123 Fitch Deutschland GmbH Neue Mainzer Strasse 4650 60311 Frankfurt am Main Krista Davies Director +44203 530 1579 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available on www.fitchratings.com Related Research 2017 Outlook: Austrian Banks here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. 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