Investing.com -- Tuesday saw Fitch Ratings elevate mBank S.A.’s Long Term Issuer Default Rating (IDR) to ’BBB’ from ’BBB-’, with a stable outlook, reflecting a significant decrease in the bank’s legal risks and an improvement in its internal capital generation. The Warsaw-based agency also raised the Viability Rating (VR) to ’bbb’ from ’bbb-’ and long-term senior preferred debt to ’BBB+’ from ’BBB-’.

The upgrade is primarily driven by the bank’s successful reduction in legal risks pertaining to its legacy foreign-currency mortgage loans, particularly those in Swiss francs. This change has favorably affected mBank’s credit profile, enabling a strategic shift with a stronger focus on internal capital generation.

mBank’s upgraded long-term senior debt ratings are attributed to the higher Long-Term IDR and the revised expectations that the bank will sustainably meet its minimum requirement for own funds and eligible liabilities (MREL) without leaning on senior preferred debt. This outlook is bolstered by mBank’s solid internal capital generation and a clear understanding of its future capital requirements and expected growth in risk-weighted assets (RWAs).

The bank’s ratings benefit from its established market presence, especially in the retail sector, supported by a cost-efficient business model. These factors contribute to mBank’s consistent profitability, stable funding, and robust liquidity. However, its capitalization is considered only adequate, and its asset-quality metrics fall short when compared to international peers. Nonetheless, mBank’s National Ratings reflect its relative creditworthiness within the Polish banking landscape.

mBank, ranking as the fifth-largest bank by assets in Poland, continues to attract a loyal customer base through its strong digital offerings. This has facilitated stable growth and profitability, with lending growth expected to persist into 2025, particularly in mortgage lending.

The bank’s moderate risk profile and effective management of its unsecured retail lending exposure, alongside a well-hedged portfolio of Polish sovereign debt, contribute to its stable asset quality. mBank’s asset-quality metrics are anticipated to remain resilient despite economic challenges, with an impaired loans ratio slightly below 4% at the end of 2025.

Fitch forecasts mBank’s profitability to stabilize, with reduced legal costs and a projected operating profit/RWAs of 4% for 2025 and 2026. The bank’s common equity Tier 1 (CET1) ratio is expected to remain slightly above 14% at the end of 2025, despite temporary pressures.

The bank’s funding and liquidity profile is reinforced by a stable deposit base and diversified wholesale funding, with a gross loans/customer deposits ratio expected to stay below 65% in 2025, highlighting its liquidity strength.

Negative rating actions could be triggered by a significant and lasting deterioration in asset quality, impacting profitability and capitalization. Conversely, positive rating action could result from an improved assessment of the Polish operating environment and a stronger business profile for mBank.

The senior preferred and senior non-preferred debt ratings, as well as the short-term ratings, are closely tied to mBank’s IDRs. The Additional Tier 1 (AT1) notes rating, which was also upgraded, is influenced by the bank’s VR and its ability to maintain capital buffers.

mBank’s Government Support Rating (GSR) reflects the current Polish bank resolution legal framework, indicating that state support for the bank is not a reliable expectation. Changes in the propensity of Poland to support its banks could affect the GSR, although such a shift is considered highly unlikely by Fitch.

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