On the 21st of December 2023, Bank Burgenland announced the acquisition of de-merged parts of Austrian Anadi Bank (Anadi Bank). The de-merged parts comprise all branches in the Austrian federal state of Carinthia, including their retail customers and a selected portfolio of SME and real estate financings with a focus on Carinthia. It also includes corresponding liabilities. The transaction is expected to close in September 2024, subject to the fulfilment of agreed upon conditions, including the approval of the Austrian Financial Market Authority (FMA).

The acquisition is not expected to materially impact Bank Burgenland’s mortgage covered bonds. Once merged, selected cover assets and covered bonds from two of Anadis existing covered bond programmes (Programme A [conditional pass through] and Programme B [Hard Bullet]) will also be merged into Bank Burgenland’s mortgage covered bond programme.

The acquisition is not expected to impact Bank Burgenland’s issuer rating (see Scope affirms Bank Burgenland's A- issuer rating with Stable Outlook).

It is also not expected to impact the covered bond programme ratings. Scope’s assessment of governance support factors remains unchanged, providing five notches of uplift above the issuer rating and ii.) a maximum of three notches of uplift from Scope’s cover pool analysis.

The strength of the Austrian legal covered bond and resolution framework including issuer and covered bond specific factors are expected to remain unchanged. The relevance of the bank and its covered bond programme will remain a constraining factor as both the merged institution and its covered bonds are still considered as small to medium compared to other globally or domestic systemic important banks.

Scope acknowledges some limited execution risks during the de-merger from Anadi and subsequent merger of the former into Bank Burgenland’s mortgage covered bonds. However, Scope does not expect cover pool support to become impaired as even in the scenario where assets could legally not be registered in the cover pool, this would remain neutral to the current rating. Bank Burgenland’s mortgage covered bond ratings currently benefits from a very high level of overcollateralisation (68% as of December 2023) and the additional covered bonds would only increase the outstanding covered bonds by around 7%. The programme further benefits from a two-notch downgrade cushion against the stable issuer rating.

Anadi’s cover assets feature key risk characteristics that are comparable with Bank Burgenland’s cover pool. A merged portfolio is not expected to change the risk profile significantly. Also, the bonds planned to be transferred will not have a sizeable impact in Scope’s supporting overcollateralisation of 10%. Identified covered bonds are both, hard-bullet bonds or in case of Anadi’s mortgage covered bond programme “A” - conditional pass-through covered bonds.

Scope has affirmed the Austrian mortgage-covered bonds issued by Bank Burgenland on 22 November 2023 with a stable outlook.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.