Alior Bank’s outlook revised to positive by Fitch

Investing.com -- Fitch Ratings has revised Alior Bank S.A.’s outlook to positive from stable while affirming its long-term issuer default rating at ’BB+’ and viability rating at ’bb+’.

The positive outlook reflects Alior’s progress in rebalancing its business mix and addressing legacy issues, which has improved its risk profile. This improvement is evident in a lower impaired loans ratio that is now closer to the Polish industry average and profitability metrics that compare favorably with peers.

Alior Bank is a second-tier bank in Poland focused on retail mass market and SME segments. Its strategic focus is on strengthening relationship banking to improve stability and diversification of revenue streams.

The bank has been actively reducing legacy impaired loans, focusing more on secured lending, and implementing tighter underwriting discipline in consumer and non-retail segments. These actions have led to continued improvement in asset quality and reduced risk concentrations.

Despite improvements, Alior’s impaired loans ratio remains higher than the industry average and most Fitch-rated Polish banks. Fitch expects this ratio to reduce further in the medium term based on management’s commitment, continued progress with bad debt clean-up, tighter underwriting standards, and a gradually changing loan mix.

The bank’s profitability is expected to weaken from record highs in 2024 due to falling interest rates and higher risk-weighted assets. However, Fitch projects operating profit to risk-weighted assets will stabilize at about 4% over the next two years, remaining well above historical performance.

Alior’s capitalization has strengthened through solid internal capital generation and progress with loan book clean-up. Fitch forecasts a broadly stable common equity Tier 1 ratio at about 17% by end-2027, despite expected continued dividend distributions.

The bank’s funding and liquidity benefit from stable and granular customer deposit-based funding, with funding costs close to the industry average. Fitch expects the gross loans to deposits ratio to remain around 85% in the medium term.

An upgrade of Alior’s ratings would require tangible improvements in the bank’s business profile, driven by changes in its loan mix towards lower-risk assets and customer types, along with further progress in addressing asset quality issues. This would need to be demonstrated by an impaired loans ratio consistently below 5% and loan impairment charges closer to industry averages.

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