Scope highlights improved clarity in senior debt positioning in Austrian banks’ capital structure

Recent passing of amendments to Section 131 of the Austrian Bank Recovery and Resolution Act will enable Scope to apply fully its bank rating methodology when rating Austrian banks’ debt

Scope Ratings noted that the recently passed amendment to Section 131 of the Austrian Bank Recovery and Resolution Act will enable it to apply fully its bank rated methodology (last updated in May 2018) when rating Austrian banks’ debt.

The agency added that as of now it has not assigned publicly issuer ratings or unsecured debt ratings to Austrian banks.

The Section 131 amendment referred to by Scope addresses “ranking in insolvency” for Austrian banks, introducing the possibility to issue contractually defined senior debt replicating the characteristics of non-preferred senior debt existing elsewhere in the European Union. In a scenario of liquidation (or by extension of resolution) such debt would rank below senior unsecured liabilities – deposits and outstanding senior unsecured debt – but above subordinated debt and/or capital securities. Scope considers that these future securities would be MREL-eligible.

Regarding MREL-eligible debt, Scope’s bank rating methodology highlights that, when there is sufficient clarity regarding its positioning in a EU bank’s capital structure, its rating will be at least one notch below the respective bank’s issuer rating or the rating of its preferred senior debt. Based on the guidance of the amended legislation referenced above, Scope said that it will rate currently outstanding senior unsecured debt of Austrian banks at the same level as the issuer rating, while the future MREL-eligible senior non-preferred debt will be rated at least one notch below.

Recent passing of amendments to Section 131 of the Austrian Bank Recovery and Resolution Act will enable Scope to apply fully its bank rating methodology when rating Austrian banks’ debt

Scope Ratings noted that the recently passed amendment to Section 131 of the Austrian Bank Recovery and Resolution Act will enable it to apply fully its bank rated methodology (last updated in May 2018) when rating Austrian banks’ debt.

The agency added that as of now it has not assigned publicly issuer ratings or unsecured debt ratings to Austrian banks.

The Section 131 amendment referred to by Scope addresses “ranking in insolvency” for Austrian banks, introducing the possibility to issue contractually defined senior debt replicating the characteristics of non-preferred senior debt existing elsewhere in the European Union. In a scenario of liquidation (or by extension of resolution) such debt would rank below senior unsecured liabilities – deposits and outstanding senior unsecured debt – but above subordinated debt and/or capital securities. Scope considers that these future securities would be MREL-eligible.

Regarding MREL-eligible debt, Scope’s bank rating methodology highlights that, when there is sufficient clarity regarding its positioning in a EU bank’s capital structure, its rating will be at least one notch below the respective bank’s issuer rating or the rating of its preferred senior debt. Based on the guidance of the amended legislation referenced above, Scope said that it will rate currently outstanding senior unsecured debt of Austrian banks at the same level as the issuer rating, while the future MREL-eligible senior non-preferred debt will be rated at least one notch below.