exhibit 1 rating scorecard - key financial ratios summary ... · rlb tirol had a 5.64% share in the...

FINANCIAL INSTITUTIONS

CREDIT OPINION24 July 2017

Update

RATINGS

Raiffeisen-Landesbank Tirol AGDomicile Austria

Long Term Debt Not Assigned

Type Not Assigned

Outlook Not Assigned

Long Term Deposit Baa1

Type LT Bank Deposits - DomCurr

Outlook Stable

Please see the ratings section at the end of this reportfor more information. The ratings and outlook shownreflect information as of the publication date.

Contacts

Katharina Barten 49-69-70730-765Sr Vice [email protected]

Alexander Hendricks,CFA

49-69-70730-779

Associate ManagingDirector - [email protected]

Carola Schuler 49-69-70730-766Managing Director [email protected]

Raiffeisen-Landesbank Tirol AGSemiannual update

Summary rating rationaleWe assign Baa1/P-2 deposit and issuer ratings to Raiffeisenlandesbank Tirol (RLB Tirol).The bank's Baseline Credit Assessment (BCA) is baa3. We further assign Counterparty RiskAssessments (CR Assessments) of A3(cr)/P-2(cr).

RLB Tirol's Baa1 ratings reflect (1) the bank's baa3 BCA; (2) its baa3 adjusted BCA, whichincorporates very high affiliate support from Raiffeisen Banking Group (RBG), but results inno rating uplift from the baa3 BCA; and (3) the result of our Advanced Loss Given Failure(LGF) analysis, which takes into account the severity of loss faced by the different liabilityclasses in resolution, adding two notches of rating uplift from RLB Tirol's baa3 adjusted BCAto its deposit and issuer ratings.

The baa3 BCA reflects RLB Tirol's sound capitalisation, adequate funding profile and strongliquidity. At the same time, the bank's BCA remains constrained by the bank's below-averageasset quality, the tail risks associated with its concentrated investments, and the relativelyweak operating environment and therefore resulting profitability pressures.

Exhibit 1

Rating Scorecard - Key financial ratios

6,9% 14,2%

0,2%

66,7% 63,0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Asset Risk:Problem Loans/

Gross Loans

Capital:Tangible Common

Equity/Risk-WeightedAssets

Profitability:Net Income/

Tangible Assets

Funding Structure:Market Funds/

Tangible BankingAssets

Liquid Resources:Liquid Banking

Assets/TangibleBanking Assets

Solvency Factors (LHS) Liquidity Factors (RHS)

RVB Tirol (BCA: baa3) Median baa3-rated banks

So

lve

ncy F

acto

rs

Liq

uid

ity F

acto

rs

Source: Moody's Financial Metrics

https://www.surveygizmo.com/s3/1133212/Rate-this-research?pubid=PBC_1080765

MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Credit strengths

» RLB Tirol's capitalisation is strong, especially when taking into account its fully taxed Austrian GAAP reserves.

» RLB Tirol's large liquidity cushion and access to sector funds mitigate funding risks.

» Senior creditors benefit from a large volume of outstanding debt, and therefore, a very low loss-given-failure, in the unlikely eventof resolution.

Credit weaknesses

» Asset quality remains weak and the risk profile is vulnerable to risks stemming from sector concentrations and sizeable equityinvestments.

» The bank's profitability is modest, with some dependence on contributions from Raiffeisen Bank International (RBI, Baa1 stable/Baa1 stable, ba2)1 earnings.

Rating outlook

» The outlook for RLB Tirol's ratings is stable, reflecting our expectation that the bank will be able to sustain, if not further improve,its satisfactory capitalisation and the positive trend in asset quality.

» The Raiffeisen sector's financial strength remains a limiting factor on RLB Tirol's individual creditworthiness. Further progress in thede-risking will likely continue to stabilise RBI. However, RBI's large size and higher risk profile relative to the domestic Raiffeisensector will probably continue to constrain individual member banks' BCAs to low-investment-grade levels in 2017.

Factors that could lead to an upgrade

» RLB Tirol's ratings could be upgraded if (1) stronger fundamentals justify a raising of the BCA; (2) RBG's financial strength improves,such that it raises or removes the current rating constraints, or even results in affiliate support uplift; or (3) it benefits fromadditional rating uplift, as assessed in our Advanced LGF analysis. The latter is unlikely, however, given that higher rating upliftwould require materially higher subordinated instruments.

» Upward pressure on the BCA would arise if the bank demonstrates that it can sustain the positive trend in its asset-quality metricsand improve profits to raise its capital-generation capacity.

Factors that could lead to a downgrade

» A downgrade could be prompted if (1) weakening fundamentals warrant a lowering of the bank's BCA; (2) we were to lowerRBG's BCA, because this could raise the current constraints for RLB Tirol's BCA; and (3) the volume of senior unsecured liabilitiescontinues to decline, as observed in 2016, because this would increase the loss-given-failure for senior creditors, which would leadto a weaker result from our LGF assessment.

» Negative pressure on the BCA could result from a material weakening in RLB Tirol's profitability and capital ratios, or indications ofmaterially rising asset risks.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.

2 24 July 2017 Raiffeisen-Landesbank Tirol AG: Semiannual update


Key Indicators

Exhibit 2

Raiffeisen-Landesbank Tirol AG (Unconsolidated Financials) [1]12-162 12-152 12-142 12-133 12-123 CAGR/Avg.4

Total Assets (EUR billion) 7.3 7.4 7.1 7.3 7.1 0.85

Total Assets (USD billion) 7.7 8.1 8.6 10 9.3 -4.75

Tangible Common Equity (EUR billion) 0.4 0.4 0.4 0.4 0.4 3.35

Tangible Common Equity (USD billion) 0.4 0.4 0.5 0.5 0.5 -2.35

Problem Loans / Gross Loans (%) 5.9 6.3 8.5 7.0 4.3 6.46

Tangible Common Equity / Risk Weighted Assets (%) 14.2 13.3 12.7 12.2 11.4 13.47

Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) 27.8 30.9 39.8 34.1 22.2 30.96

Net Interest Margin (%) 0.7 0.7 0.8 0.8 0.8 0.86

PPI / Average RWA (%) 0.8 0.9 1.4 1.3 1.3 1.07

Net Income / Tangible Assets (%) 0.3 0.2 0.3 0.2 0.2 0.26

Cost / Income Ratio (%) 72.2 70.5 59.9 62.8 59.5 65.06

Market Funds / Tangible Banking Assets (%) 66.7 67.3 68.5 70.4 70.0 68.66

Liquid Banking Assets / Tangible Banking Assets (%) 63.0 63.6 62.1 63.2 40.6 58.56

Gross Loans / Due to Customers (%) 134.6 139.2 147.4 153.4 156.6 146.26

[1] All figures and ratios are adjusted using Moody's standard adjustments [2] Basel III - fully-loaded or transitional phase-in; LOCAL GAAP [3] Basel II; LOCAL GAAP [4] May includerounding differences due to scale of reported amounts [5] Compound Annual Growth Rate (%) based on time period presented for the latest accounting regime [6] Simple average ofperiods presented for the latest accounting regime. [7] Simple average of Basel III periods presentedSource: Moody's Financial Metrics

Detailed rating considerationsWith total assets of €7.3 billion as of December 2016, RLB Tirol is one of the smaller of the eight Raiffeisenlandesbanken in Austria. RLBTirol is majority-owned by 71 local primary credit co-operatives in the region, for which the bank is the central institution. In the Tyrolarea, the regional co-operative sector has sizeable market shares in retail banking and in lending to private customers, and small andmedium-sized enterprises.

RLB Tirol had a 5.64% share in the former RZB as of end of 2016, which was merged with RBI in March 2017. Following the merger,RLB Tirol is now a direct shareholder in RBI, holding a 3.7% share, which implies a material indirect exposure to Central and EasternEuropean banking markets. Until 2014, the participation in the former RZB contributed a significant portion to RLB Tirol's income. Thebank's financial reporting is based on local GAAP.

RLB Tirol's improved capitalisation is strong when taking into account local GAAP reservesRLB Tirol reported a satisfactory 13.9% Common Equity Tier 1 ratio as of the end of 2016, up from 13.1% a year earlier, under theCapital Requirements Regulation and Directive (CRR/CRD IV). The ratio benefitted from a slight increase in CET1 capital and a 2%reduction in risk-weighted assets (RWA) in 2016. Our tangible common equity (TCE) ratio (which excludes intangible assets but doesnot apply various deductions made by the regulator) was 14.2% as of the end of 2016, up from 13.3% a year earlier.

In addition to its €405 million CET1 capital, RLB Tirol has additional capital resources stemming from (1) €43.0 million in reservesunder Austrian local GAAP,2 which are not included in its regulatory CET1 capital; and 2) considerable hidden reserves from itsparticipations, which the bank accounts for at historical costs. If the bank were to report under IFRS, the respective amounts wouldbe attributed to its CET1 capital. Adjusted for Austrian GAAP reserves, the bank's CET1 ratio was 15.4% as of the end of 2016, slightlyabove those of its Austrian peers.

At the same time, the bank faces various risks to capital, specifically from its concentrated equity investments and evolving regulationsthat could result in higher RWA over the next year. The bank's €206 million participations (mostly the stake in the former RZB) as ofthe end of 2016 represent a material concentration in the context of RLB Tirol's €405 million CET1 capital. To account for the relatedrisk, we simulated an impairment of the bank's stake in RBI, which we discounted from its adjusted TCE of €457 million (adjusted forlocal GAAP reserves as of the end of December 2016), and adjusted the Capital Score accordingly, resulting in an a2 score.



RLB Tirol's asset risk, although improving, remains relatively highRLB Tirol's problem loan ratio improved to 5.9% as of December 2016 from 6.3% as of December 2015, but remains slightly weakerthan those of Austrian peers focused on the domestic market. For 2017, we expect the bank's problem loans to continue to trenddown, underpinned by the benign credit environment for sectors that the bank is most exposed to, in particular tourism. The bank'sprovisioning levels of roughly 50% are adequate.

Lending activities to commercial customers, predominantly small and medium-sized enterprises, account for roughly three quartersof the €2.4 billion loan book and contain considerable sector concentrations. The bank's exposure to real estate, at €686 million,is particularly large relative to capital. Other concentrations are in the tourism and retail trade sectors. These concentrated sectorexposures are somewhat mitigated by the stable economic environment in the Tyrol region and in southern Germany.

RLB Tirol's Asset Risk score is ba3. This score includes adjustments for concentration risk and market risk, the latter reflecting the bank'ssizeable loans denominated in foreign currencies.

RLB Tirol's profitability is modest and partly dependent on RBI's dividendsDespite a weaker operating profit of €28.4 million (-6.3% compared with a year earlier), RLB Tirol reported a strong net profit of €19.7million for the year 2016. The reported result included a charge of €25.5 million according to §57(1) BWG, which the bank transferredto fully taxed reserves under Austrian GAAP.3 Such transfers principally understate the bank's true profit. During the two years to 2016,the bank made transfers to reserves, thereby adding to its loss-absorption buffers.

Adjusted for Austrian GAAP reserves, the 2016 net profit was unusually high at €45.2 million. That said, the (adjusted) result alsoincludes (1) a €12.5 million positive first-time accounting effect, following a legal change to Austrian local GAAP reporting standardsthat aim to enhance transparency; and (2) an unusually high €25.3 million release of specific loan-loss provisions. Adjusted for thesetwo items, net profit was low at €7.4 million.

The underlying performance reflects revenue pressure, given a 3.5% decline in operating income to €91 million. This decline was onlypartly offset by a 2.2% reduction in operating costs to €63 million. Revenue erosion was driven by lower commission income of €21million (-8.4%) and weaker other operating income of €8 million (-27.6%). The latter includes rental income and income from bankingservices for the primary banks of the Raiffeisen sector. In addition, the former RZB again did not pay any dividend for the year.

For 2017, we expect a stable result because the persistent pressure on operating revenue will probably be offset by lower charges(contributions to the national stability fund will decline). Risk charges will likely remain at a low level. In addition, we expect RLB Tirolto continue efforts to reduce costs through streamlining its processes and adjusting the business to changing customer needs. Thesemeasures could further ease persistent revenue pressure.

RLB Tirol's Profitability score of ba3 reflects the bank's relatively resilient underlying performance, but also less reliable, yet vital incomestreams from RBI and the modest loss-absorption capacity of its pre-provision income.

Funding risks are mitigated by sound liquidity buffers and access to sector fundsAs the central institution for the local Raiffeisen banks in Tyrol, RLB Tirol has access to diversified funding sources, including sectorfunds (€2.1 billion in 2016) and own issuances (€1.3 billion), which are also partly placed within the Raiffeisen sector. These funds arecomplemented by deposits (€1.9 billion) and interbank funding (€1.5 billion from banks outside the sector). The reported net stablefunding ratio of 106% illustrates the bank's fully matched funding structure.

The bank's (unadjusted) market funds ratio remained high at 67% in 2016. However, for our assessment of the bank's funding profile,we made favourable adjustments for several risk-mitigating factors, including funds received from primary credit cooperatives, from theformer RZB and from development banks. These factors led to an assigned Funding Structure score of ba1.

RLB Tirol has a relatively liquid balance sheet, considering that its loan book and investments only represent 36% of total assets, withthe remainder mostly comprising interbank claims (38%, mostly due from the sector) and securities investments (25%). The reportedliquidity coverage ratio as of December 2016 was adequate at 99%. The baa1 Liquidity score reflects our adjustments for intra-sectorlending to primary banks and asset encumbrance.



RLB Tirol's ratings are supported by Austria's Macro Profile Score of Strong +RLB Tirol's Macro Profile is Strong+, in line with Austria's Strong+ Macro Profile (Aa1 stable4), as the bank's assets are primarilygenerated within its home market.

Austria's Strong+ Macro Profile reflects the country's stable economic environment, with a robust institutional and legal framework,sound government finances and a low susceptibility to adverse events. Despite rising house prices, private sector debt is lowand declining, further supporting credit conditions. Our Macro Profile also takes into account the banking sector's high marketfragmentation, low fee income generation and intense competition for domestic business.

Notching considerationsAffiliate supportWe consider the likelihood of support from RBG, the Austrian Raiffeisen sector, to be very high owing to RLB Tirol's regional importanceto the sector. This support materially reduces the probability of default, as the co-operative group cross-sector support mechanismaims to stabilise its members by avoiding a bail-in or any form of loss participation by creditors.

We assess the Austrian Raiffeisen sector's financial capacity to provide support to its members based on the co-operative group'scombined financial strength. Although the group's combined financial strength has recently stabilised, we still consider RBG'scapitalisation to be moderate relative to its overall credit profile, which is strongly correlated with its higher-risk Central and EasternEuropean exposures, housed at RBI. The sector's limited support capacity implies a constraint to the possible uplift included in memberbanks' ratings. Therefore, member banks with BCAs of ba1 or higher do not benefit in terms of rating uplift from our very high supportassumption for the group of Raiffeisenlandesbanken. Accordingly, RBG cross-sector support currently results in no rating uplift for RLBTirol.

Loss given failureRLB Tirol is subject to the EU Bank Recovery and Resolution Directive, which we consider to be an operational resolution regime. Weassume a residual TCE of 3%, and losses post-failure of 8% of tangible banking assets, a 25% runoff in junior wholesale deposits and a5% runoff in preferred deposits, and assign a 25% probability to deposits being preferred to senior unsecured debt. These metrics are inline with our standard assumptions.

» RLB Tirol's deposits are likely to face very low loss-given-failure, resulting in two notches of rating uplift from the baa3 adjustedBCA.

» RLB Tirol's senior obligations are also likely to face very low loss-given-failure, resulting in two notches of rating uplift from thebaa3 adjusted BCA.

Government supportIn contrast to banks in other EU countries and reflective of government measures in Austria implemented since 2014, we assign alow level of support for the senior debt and deposit ratings of Austrian banks. As a consequence, we do not include any beneficialrating impact for government support in RLB Tirol's issuer and deposit ratings, despite the strong national market shares and systemicrelevance of the Raiffeisen sector as a whole to the country's banking system.

About Moody's Bank ScorecardOur Scorecard is designed to capture, express and explain in summary form our Rating Committee's judgment. When read inconjunction with our research, a fulsome presentation of our judgment is expressed. As a result, the output of our Scorecardmay materially differ from that suggested by raw data alone (though it has been calibrated to avoid the frequent need for strongdivergence). The Scorecard output and the individual scores are discussed in rating committees and may be adjusted up or down toreflect conditions specific to each rated entity.



Rating Methodology and Scorecard Factors

Exhibit 3

Raiffeisen-Landesbank Tirol AGMacro FactorsWeighted Macro Profile Strong + 100%

Factor HistoricRatio

MacroAdjusted

Score

CreditTrend

Assigned Score Key driver #1 Key driver #2

SolvencyAsset RiskProblem Loans / Gross Loans 6.9% ba1 ↓ ba3 Sector concentration Market risk

CapitalTCE / RWA 14.2% a1 ↓ a2 Stress capital

resilienceProfitabilityNet Income / Tangible Assets 0.2% b1 ← → ba3 Expected trend

Combined Solvency Score baa2 baa3LiquidityFunding StructureMarket Funds / Tangible Banking Assets 66.7% caa1 ↑ ↑ ba1 Market

funding qualityLiquid ResourcesLiquid Banking Assets / Tangible Banking Assets 63.0% aa2 ↓ ↓ baa1 Intragroup

restrictionsAsset encumbrance

Combined Liquidity Score ba1 baa3Financial Profile baa3

Business Diversification 0Opacity and Complexity 0Corporate Behavior 0

Total Qualitative Adjustments 0Sovereign or Affiliate constraint: Aa1Scorecard Calculated BCA range baa2-ba1Assigned BCA baa3Affiliate Support notching --Adjusted BCA baa3

Balance Sheet in-scope(EUR million)

% in-scope at-failure(EUR million)

% at-failure

Other liabilities 4,060 55.7% 4,060 55.7%Deposits 1,874 25.7% 1,874 25.7%

Preferred deposits 1,387 19.0% 1,317 18.1%Junior Deposits 487 6.7% 365 5.0%

Senior unsecured bank debt 1,105 15.1% 1,105 15.1%Dated subordinated bank debt 36 0.5% 36 0.5%Equity 219 3.0% 219 3.0%Total Tangible Banking Assets 7,294 100% 7,294 100%



De Jure waterfall De Facto waterfall NotchingDebt classInstrumentvolume +

subordination

Sub-ordination

Instrumentvolume +

subordination

Sub-ordination

De Jure De FactoLGF

NotchingGuidance

vs.Adjusted

BCA

AssignedLGF

notching

Additionalnotching

PreliminaryRating

Assessment

Counterparty Risk Assessment 23.7% 23.7% 23.7% 23.7% 3 3 3 3 0 a3 (cr)Deposits 23.7% 3.5% 23.7% 18.6% 2 3 2 2 0 baa1Senior unsecured bank debt 23.7% 3.5% 18.6% 3.5% 2 2 2 2 0 baa1

Instrument class Loss GivenFailure notching

AdditionalNotching

Preliminary RatingAssessment

GovernmentSupport notching

Local CurrencyRating

ForeignCurrency

RatingCounterparty Risk Assessment 3 0 a3 (cr) 0 A3 (cr) --Deposits 2 0 baa1 0 Baa1 --Senior unsecured bank debt 2 0 baa1 0 Baa1 Baa1Source: Moody's Financial Metrics

Ratings

Exhibit 4Category Moody's RatingRAIFFEISEN-LANDESBANK TIROL AG

Outlook StableBank Deposits -Dom Curr Baa1/P-2Baseline Credit Assessment baa3Adjusted Baseline Credit Assessment baa3Counterparty Risk Assessment A3(cr)/P-2(cr)Issuer Rating Baa1ST Issuer Rating P-2

Source: Moody's Investors Service



Endnotes1 The ratings refer to RBI's long-term deposit rating and outlook, the long-term senior unsecured debt rating and outlook, and the BCA.

2 Fully taxed local GAAP reserves, based on §57(1) of the Austrian Legal Banking Act, are deducted from gross loans and not disclosed as reserves.

3 In accordance with §57(1) of the Austrian Legal Banking Act, transfers to fully taxed reserves under Austrian local GAAP are labeled as loan-loss provisionsand booked under risk charges in the income statement.

4 The rating shown is the sovereign bond rating and outlook.



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Contributors

Katharina BartenSenior Vice [email protected]

Gerson MorgensternAssociate Analyst [email protected]

CLIENT SERVICES

Americas 1-212-553-1653

Asia Pacific 852-3551-3077

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exhibit 1 rating scorecard - key financial ratios summary ... · rlb tirol had a 5.64% share in the...

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