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Rating Action:

Moody's affirms Hypo Vorarlberg Bank AG's ratings; outlook remains stable

14 Jul 2022

Frankfurt am Main, July 14, 2022 -- Moody's Investors Service (Moody's) has today affirmed the ratings of Hypo Vorarlberg Bank AG (Hypo Vorarlberg), including its A3 long-term deposit, issuer, and senior unsecured debt ratings, as well as its Baa3 subordinated debt rating. The outlook on the long-term deposit, issuer, and senior unsecured debt ratings remains stable. Concurrently, the rating agency has affirmed Hypo Vorarlberg's baa2 Baseline Credit Assessment (BCA) and its baa2 Adjusted BCA.

A full list of affected ratings and rating inputs can be found at the end of this press release.

RATINGS RATIONALE

-- AFFIRMATION OF HYPO VORARLBERG's BASELINE CREDIT ASSESSMENT

The affirmation of Hypo Vorarlberg's baa2 BCA considers the bank's solid solvency profile as well as its more tightly managed liquidity, both of which remained rather stable during the past years, a development that the rating agency expects to be sustained. With a problem loan ratio of 2.7% as of year-end 2021, Hypo Vorarlberg reports a satisfying asset-quality, which however evidences some regional and sector concentration risks. The bank's sound risk-weighted capitalisation and strong leverage, as expressed in a tangible common equity (TCE) to risk-weighted asset (RWA) ratio of 15.2% and a TCE to tangible assets ratio of 8.4% as of 31 December 2021 are a key mitigant to these asset risks. Furthermore, the bank achieves a moderate profitability given a return on assets of 0.4% in 2021.

Hypo Vorarlberg's BCA also reflects its relatively weaker liquidity profile, due to a meaningful dependence on market funding, which is only partly mitigated by its liquid resources. Similar to other banks in the euro area, Hypo Vorarlberg has meaningfully participated in attractively priced central bank funding, which has increased its market funding dependence, but also its liquid resources. The rating agency expects that upon the repayment of these funds a portion of it will be replaced by other means of market funding, thereby increasing the issuer's dependence on confidence sensitive sources to fund expected business growth.

The baa2 BCA also takes into account the risks from the deteriorated credit environment, which could result in an uptick in problem loans and weakened profitability. However, the bank's sound capitalisation is expected to support the bank during a potential economic slowdown.

-- AFFIRMATION OF SHORT-TERM AND LONG-TERM RATINGS

The affirmation of Hypo Vorarlberg's ratings follows the affirmation of the bank's baa2 Adjusted BCA, which incorporates no affiliate support uplift from the baa2 BCA. Furthermore, the affirmation reflects the results of Moody's Advanced Loss Given Failure (LGF) analysis, which takes into account the severity of loss in resolution for Hypo Vorarlberg's different liability classes, and which continues to indicate a very low loss given failure for deposits and senior unsecured debt, resulting in two notches of rating uplift, and a high loss given failure for subordinated debt, resulting in a one notch deduction from the bank's baa2 Adjusted BCA. Finally, the affirmation incorporates an unchanged assumption of a low likelihood of sovereign government support for deposits and senior unsecured debt instruments, because of the bank's small size in the context of the Austrian banking sector.

-- OUTLOOK REMAINS STABLE

The stable outlook on the bank's long-term deposit, issuer, and senior unsecured debt ratings reflects Moody's view that Hypo Vorarlberg's intrinsic financial strength remains resilient despite a more challenging environment from economic headwinds. Moody's also considers that Hypo Vorarlberg will maintain sufficient volumes of bail-in-able liabilities safeguarding the currently assigned rating uplift resulting from the rating agency's Advanced LGF analysis.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade of Hypo Vorarlberg's ratings could result from an upgrade of its baa2 BCA (and Adjusted BCA) and from additional rating uplift as a result of Moody's Advanced LGF analysis.

Hypo Vorarlberg's baa2 BCA could be upgraded based on a sustained increase in capitalisation, a significant reduction in its reliance on market funding, and a sustainably positive profitability trend.

Moody's Advanced LGF analysis could result in an additional notch of rating uplift for the bank's deposit, issuer, and senior unsecured debt ratings if Hypo Vorarlberg issues significant volumes of junior senior unsecured debt or subordinated debt instruments or substantial amounts of lower-ranking Additional Tier 1 (AT1) securities.

A downgrade of Hypo Vorarlberg's ratings could be triggered following a downgrade of the bank's baa2 BCA (and Adjusted BCA) and from fewer notches of rating uplift from Moody's Advanced LGF analysis.

A downgrade of Hypo Vorarlberg's baa2 BCA could be triggered by a significant weakening in its capitalisation, a longer-term deterioration of its profitability, or heightened reliance on market funding without a commensurate increase in liquid resources.

Moody's Advanced LGF analysis would result in fewer notches of rating uplift if Hypo Vorarlberg replaces maturing bail-in-able senior unsecured and subordinated debt instruments with secured debt instruments to a substantial extent.

LIST OF AFFECTED RATINGS

Issuer: Hypo Vorarlberg Bank AG

..Affirmations:

....Long-term Counterparty Risk Rating, affirmed A2

....Short-term Counterparty Risk Rating, affirmed P-1

....Long-term Bank Deposits, affirmed A3, outlook remains Stable

....Short-term Bank Deposits, affirmed P-2

....Long-term Counterparty Risk Assessment, affirmed A2(cr)

....Short-term Counterparty Risk Assessment, affirmed P-1(cr)

....Long-term Issuer Ratings, affirmed A3, outlook remains Stable

....Short-term Issuer Ratings, affirmed P-2

....Baseline Credit Assessment, affirmed baa2

....Adjusted Baseline Credit Assessment, affirmed baa2

....Senior Unsecured Regular Bond/Debenture, affirmed A3, outlook remains Stable

....Senior Unsecured Medium-Term Note Program, affirmed (P)A3

....Subordinate Regular Bond/Debenture, affirmed Baa3

....Subordinate Medium-Term Note Program, affirmed (P)Baa3

..Outlook Action:

....Outlook remains Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://ratings.moodys.com/api/rmc-documents/71997. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Goetz Thurm
Vice President - Senior Analyst
Financial Institutions Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main, 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Alexander Hendricks, CFA
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main, 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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