Morningstar DBRS Upgrades the Long-Term Issuer Rating of UniCredit Bank Austria AG to A (low) From BBB (high); Changes Trend to Stable From Positive

DBRS Ratings GmbH (Morningstar DBRS) upgraded the Long-Term Issuer Rating of UniCredit Bank Austria AG (Bank Austria or the Bank) to A (low) from BBB (high). The trends on all long-term credit ratings have been changed to Stable from Positive. Morningstar DBRS also confirmed all short-term credit ratings on Bank Austria at R-1 (low) with Stable trends. The Bank's Intrinsic Assessment (IA) is now A (low), and the Support Assessment is SA3. A full list of credit ratings can be found at the end of the press release.

KEY CREDIT RATING CONSIDERATIONS
The credit rating upgrade mainly reflects the Bank's improved profitability on a sustained basis supported by the high-interest rate environment, stronger fee income, and sound cost management. The upgrade also incorporates Morningstar DBRS' expectation that the Bank will continue to report sound levels of profitability, helped by high¿albeit declining¿interest rates, as well as a gradual economic recovery in Austria. In addition, the upgrade also takes into consideration the Bank's good asset quality metrics, which slightly improved in 2024, despite an economic recession and elevated challenges in the commercial real estate market in Austria. The Bank's capital position is strong and higher than its domestic peers. This, combined with high profitability buffers, provides a significant cushion for potential risks that could stem from higher U.S. tariffs. The credit ratings also reflect the Bank's sound funding position, backed by good liquidity buffers. The IA at A (low) considers the Bank's strong market position in Austria, as well as its ownership by the UniCredit Group.

With the SA3 support assessment, Morningstar DBRS does not incorporate any expectation of systemic support for Bank Austria into the credit rating. At the same time, the Bank benefits from being part of UniCredit Group, and therefore Morningstar DBRS' view is that internal support from the UniCredit Group may be forthcoming if needed, however the Bank's rating is not notched from the parent given its strong standalone profile.

The Bank's IA of A (low) has been assigned at the lower end of the IA Range. This mostly reflects the Bank's relatively short track record of sound profitability and higher gross nonperforming loans (NPL) ratios compared with its domestic peers.

CREDIT RATING DRIVERS
Over the medium term, an upgrade of the credit ratings would require an improvement in asset quality while maintaining sound earnings capacity and high capital buffers. Given Bank Austria's ownership by the UniCredit Group, positive credit developments at UniCredit Group could result in positive implications for the credit ratings of Bank Austria.

The credit ratings would be downgraded in the event of a material deterioration in asset quality, and/or capital position. Given Bank Austria's ownership by the UniCredit Group, negative credit developments at the parent could result in negative implications for the credit ratings of Bank Austria.

CREDIT RATING RATIONALE
Franchise Combined Building Block Assessment: Good/Moderate

Bank Austria is a leading commercial and retail banking organisation in Austria, with a market share of around 12% in terms of loans and deposits. Bank Austria is owned by UniCredit S.p.A, which has significant operations in Central and Eastern Europe. With EUR 105.3 billion in total assets as of the end of 2024, Austria is the main market of UniCredit's Central Europe division. Morningstar DBRS notes that the Bank is highly integrated within UniCredit Group, in terms of risk management, policies, and strategy. The Bank mainly focuses on traditional banking products, with corporate business accounting for 48% of total revenues, followed by retail segment with 41%, and wealth management and private banking with 11% at the end of 2024.

Earnings Combined Building Block Assessment: Strong/Good
Bank Austria's earnings capacity further improved in 2024, with a reported net profit of EUR 1,286 million, up from EUR 1,126 million a year earlier. The increase was mainly supported by strong net interest income despite deposit repricing and higher fee income reflecting higher transactions. As a result, the return on equity was 12.3%, up from 11.3% in 2023 (Morningstar DBRS calculation). Despite inflationary pressures, total operational costs decreased slightly by 1.2% in 2024, and the Bank reported a strong cost-to-income ratio, standing at 37.8% at the end of 2024. In addition, loan loss provisions slightly declined to EUR 41 million in 2024 from EUR 43 million in 2023 backed by higher collections, which translates into a low cost of risk of 7 basis points. In 2025, Morningstar DBRS expects the Bank's core earnings to remain sound and largely stable, helped by high¿albeit declining¿interest rates, and fee income will be supported by the gradual economic recovery in Austria. Cost of risk could moderately increase because of ongoing challenges in the commercial real estate market as well as the high market volatility driven by the higher U.S. tariffs. However, the increase would be from a very low base, and Morningstar DBRS does not anticipate significant pressures on earnings in 2025.

Risk Combined Building Block Assessment: Good
In Morningstar DBRS' view, the Bank has sound asset quality, largely reflecting its strong market position in Austria, and supported by conservative underwriting standards. The Bank's balance sheet mainly consists of loans to retail and corporate customers, as well as investments in debt securities, the bulk of which were classified at fair value through other comprehensive income. The Bank's asset quality slightly improved in 2024 despite the economic recession in Austria, with the gross NPL ratio decreasing to 3.1% from 3.4% a year earlier, largely driven by strong collections and write-offs. The NPL coverage ratio reduced to 37.7% at the end of 2024 from 38.4% at the end of 2023, but still remaining at an adequate level given good collateralization level of new NPLs. In addition, the Bank's gross customer loans declined by around 5% in 2024, driven by early repayments by some large corporates, and the intra-group transfer of some clients to UniCredit Bank GmbH, Germany. In 2025, Morningstar DBRS expects that sluggish economic growth in Austria and elevated challenges in the commercial real estate sector could pose a risk to the Bank's asset quality. Still, the strong labour market as well as relatively low household debt level in Austria are mitigating factors for potential credit risks.

Funding and Liquidity Combined Building Block Assessment: Strong/Good
Bank Austria's funding profile is strong and is mainly comprised of a large customer deposit base and solid covered bond platform. Senior unsecured bonds are typically issued at the Group level, which is also the single point of entry for the UniCredit Group as far as the resolution regime is concerned. In 2024, customer deposits represented around 64% of total nonequity funding, and roughly 58% of these deposits are from the Retail and Wealth Management and Private Banking divisions. In 2024, total customer deposits increased by EUR 1 billion (+2% compared with at the end of 2023) driven by all business segments. Overall liquidity is solid, with liquidity coverage ratio and net stable funding ratios standing at 158% and 126%, respectively.

Capitalisation Combined Building Block Assessment: Strong/Good
In Morningstar DBRS' view, the Bank has a strong capital position, supported by an improved earnings capacity in recent years. Bank Austria reported its CET1 and total capital ratios at the end of 2024 at 19.3% and 23.2%, respectively, which remained largely stable compared with 2023, despite slightly higher risk-weighted assets. The Bank's leverage ratio is also adequate, at around 6.3%. In addition to the minimum capital requirement of 8%, Bank Austria is subject to a capital conservation buffer of 2.5%, consisting of a systemic risk buffer requirement of 0.5%, as well as to a 1.5% other systemic institutions buffer. Bank Austria is also required to maintain a 1.75% institution-specific Pillar 2 buffer.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/452333.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
ESG Considerations had a significant effect on the credit analysis.

Given the ownership by UniCredit Group, credit rating actions on the Republic of Italy could have an impact on this credit rating. ESG factors that have a significant or relevant effect on the credit analysis of the Republic of Italy are discussed separately at https://dbrs.morningstar.com/issuers/17689.

There were no Environmental factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024), https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (4 June 2024) https://dbrs.morningstar.com/research/433881. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024; https://dbrs.morningstar.com/research/437781) in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The sources of information used for these credit ratings include Morningstar, Inc. and Company Documents, UniCredit Bank Austria Annual Reports (2019-24), UniCredit Bank Austria (Fixed Income presentation, March 2025), UniCredit Bank Austria Pillar 3 Report. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, these are unsolicited credit ratings. These credit ratings were not initiated at the request of the issuer.

With Rated Entity or Related Third-Party Participation: YES
With Access to Internal Documents: NO
With Access to Management: NO

Morningstar DBRS does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are under regular surveillance.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://dbrs.morningstar.com/research/452332

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Halil Senturk, Assistant Vice President - European Financial Institution Ratings
Rating Committee Chair: Elisabeth Rudman, Managing Director - Global Financial Institution Ratings
Initial Rating Date: 21 July 2022
Last Rating Date: 24 April 2024

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