Rating action

Scope Ratings GmbH (Scope) has affirmed the AAA rating on the Austrian mortgage covered bonds (Hypothekenpfandbriefe) issued by Hypo-Bank Burgenland AG (Bank Burgenland). The Outlook is Stable.

Download the covered bond performance update.

Key rating drivers

Covered bond rating anchor: A-. The issuer rating is the starting point of the covered bond rating. It reflects the bank’s well-established, profitable and regionally focused banking operations in the Austrian regions of Burgenland, Vienna, Carinthia and Styria. Bank Burgenland’s business model is well diversified, focusing on real estate financing, supported by good market positions in retail and private banking as well as asset management and custodian banking for institutional investors. (See detailed rating report here).

Governance support (plus up to five notches). This rating uplift reflects the high likelihood of covered bonds being maintained as a going concern in the event of regulatory action in the issuer as well as a smooth transition from the first (issuer) to the second recourse (cover pool) if needed. It consists of two notches from Scope’s legal framework and structural support assessment and three notches from our resolution regime and systemic importance assessment.

Scope’s legal framework and structural support analysis for Bank Burgenland’s Austrian mortgage covered bonds considers: 1) the cover pool’s valid segregation from a potential insolvency estate of the issuer; 2) the very high likelihood of bond payments continuing after a moratorium or insolvency; 3) strong legal asset eligibility and risk management principles; 4) that enhancements to the covered bond programme remain available after a moratorium or insolvency of the issuer; and 5) the strong regulatory oversight specifically for Austrian covered bonds. (ESG factor)

The resolution regime and systemic importance assessment considers: 1) the existence and clarity of statutory provisions that allow to maintain an issuer and its covered bonds as a going concern upon a regulatory intervention; 2) the strength of such statutory provisions protecting covered bonds against regulatory actions or bail-in; 3) the moderate systemic importance in Austria of the issuer and the very high relevance of Austrian covered bonds; and 4) Austria’s strong proactive stakeholder community. (ESG factor)

Cover pool support (plus up to three notches). This additional rating uplift reflects the impact of the second recourse. It considers the programmes cover pool complexity (CPC) risk category of Low-risk which could translate into an additional cover pool supported uplift of up to three notches. (ESG factor)

An overcollateralisation (OC) of 10% is needed to support the current AAA rating.

This OC reflects:

• Credit risk – granular mixed mortgage portfolio. The covered bonds are covered by a portfolio of mortgage loans to private residential and commercial borrowers. Commercial loans include housing corporations but also exposures to borrowers from other industries such as hospitality, services, retail or manufacturing. As of September 2025, the portfolio consists of 6,730 loans with a top 10 comprising 17.2%. The portfolio benefits from a moderate averaged indexed eligible loan to value of 49.5% and a seasoning of 5.8 years. Scope has calculated a term default rate of 9.0% for the residential and 9.3% for the commercial sub-portfolio. The coefficient of variation is 55% and 73%, respectively. Stressed recovery rates are 77.5% and 67.1%.
   
• Market risk – interest rate mismatches prevail. The covered bonds are exposed to market risks. Interest rate mismatches are driven by the 90.7% fixed rate mortgage bonds which compare to 45.5% of fixed rate loans. In addition, maturity mismatches arise from the bonds’ remaining life of 8.9 years which compares to 7.0 years of the assets. The bonds do not benefit from maturity extensions. However, maturity mismatches can be managed from call rights that reduce the bonds’ remaining life to around 5 years - if executed. The EUR28m of substitute assets do provide for a small cushion against short term liquidity risks. No exchange risk exists as both, assets and covered bonds are denominated in EUR.

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating sensitivities

The Stable Outlook on the covered bonds reflects Scope’s view on the stable credit performance of the issuer, and that governance support or cover pool support factors will not materially change.

Upside scenarios are not applicable as the ratings are the highest achievable.

The downside scenarios for the ratings and Outlooks are (individually or collectively):

• An issuer rating/Outlook downgrade by more than two notches
   
• A reduction in the governance support uplift by two notches or more
   
• A deterioration in Scope’s CPC assessment that could reduce the potential credit support from the cover pool
   
• Available or committed OC below rating-supporting or legal minimum

Environmental, social and governance (ESG) factors

Governance is a key rating driver. For more detail, please refer to ‘governance support’ and ‘cover pool support’ (CPC assessment) under the ‘key rating drivers’ section above.

Quantitative analysis and assumptions

For its quantitative analysis Scope applied assumptions as laid down in the covered bond methodology.

Stress testing
No stress testing was performed.

Cash flow analysis
The assessment of potential cover pool support uplift is based on a cash flow analysis using Scope Ratings’ covered bond model (Covered Bonds Expected Loss Model Version 1.2). The model applies Credit Rating distance-dependent stresses to scheduled cash flows to simulate the impact of increasing credit and market risks. The outcome of the analysis is an expected loss rate and an expected weighted average life for the instruments based on the generated cash flows.

Methodology
The methodology used for this Credit Rating and Outlook, (Covered Bond Rating Methodology, 25 July 2025), is available on scoperatings.com/governance-and-policies/rating-governance/methodologies.
The models used for this Credit Rating and Outlook are (Covered Bonds Expected Loss Model Version 1.2 and Portfolio Model Version 1.1.), available in Scope Ratings’ list of models, published under scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): registers.esma.europa.eu/cerep-publication. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Rating if the Credit Rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Rating: the Rated Entity and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Rating originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Rating and Outlook and the principal grounds on which the Credit Rating and Outlook are based. Following that review, the Credit Rating and Outlook were not amended before being issued.

Regulatory disclosures
The Credit Rating and Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Rating and Outlook are UK-endorsed.
Lead analyst: Mathias Pleißner, Executive Director
Person responsible for approval of the Credit Rating: Marco Troiano, Managing Director
The Credit Rating/Outlook was first released by Scope Ratings on 15 November 2017. The Credit Rating/Outlook was last updated on 21 November 2024.

Potential conflicts
See scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use/exclusion of liability
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