OREANDA-NEWS. S&P Global Ratings today affirmed its 'AA+/A-1+' long - and short-term issuer credit ratings on Austria's credit export agency Oesterreichische Kontrollbank AG (OKB). The outlook is stable.

At the same time, we affirmed our issue ratings on OKB's certificate of deposit, senior unsecured debt, and commercial paper programs.

The ratings on OKB reflect our opinion that there is an almost certain likelihood that the Republic of Austria (AA+/Stable/A-1+) would provide timelyand sufficient extraordinary support to the bank in the event of financial distress. This is based on our assessment of OKB's:

Critical role for Austria as its sole agent for the administration of the country's export guarantee program and its provision of export financings. In this respect, OKB serves an important sector of the export-dependent Austrian economy. This role is further underpinned by OKB's assumption in 2008 of another government mandate through its subsidiary OesterreichischeEntwicklungsbank AG; and

Integral link with the government, which plays a major role in defining the bank's strategy and provides unconditional, irrevocable, and timely guarantees for its bond issues. In addition, the government effectively guarantees most of OKB's assets and provides continuous support by servicing drawn asset guarantees. Even without government ownership, the state remains involved in OKB through government commissioners that participate in the bank's shareholder and supervisory board meetings.

The ratings also reflect our view of OKB's prudent management and stable financial profile, including an extremely low-risk loan portfolio, almost entirely comprising loans granted under OKB's export financing scheme. If OKB calls on the government to honor the guarantee on a loan, it has to transfer the underlying bank receivable to the government, which will leave OKB with nononperforming loans.

We are confident about the Austrian government's willingness to support OKB asone of its key government-related entities in practically all circumstances, and we have no doubts regarding its propensity to support OKB. In addition, the government has sufficient financial resources to support OKB.

OKB is not owned by the government, but by all prominent Austrian financial institutions, which we believe forms a stable ownership structure for the bank. The minister of finance, however, appoints a commissioner and deputy commissioner who participate in the bank's shareholder and supervisory board meetings. Most of OKB's activities are governed by specific laws, and the government explicitly guarantees almost all of OKB's debt. Because the majority of OKB's lending is collateralized by export guarantees, mainly underAustria's export guarantee program, the government effectively guarantees mostof OKB's assets, as well. In addition, we understand that neither the government nor OKB intends to change the bank's business model despite a decline in business volume and core earnings. We are convinced that the government will support the bank over and above the provision of state guarantees as long as OKB's focus on export promotion does not change. OKB also issues unguaranteed debt (French certificates of deposit) and intends to increase unguaranteed medium-term notes issuance (Kassenobligationen), which would not, in our opinion, impact the credit quality of OKB, provided that such issuance remains within manageable risk limits and for the benefit of liquidity management of OKB's treasury supporting OKB's export credit business.

As of year-end 2015, OKB's assets totaled €28.8 billion. Although this total is 19% less than in 2010, it is 3% higher than in 2014. The overall decline primarily reflects a change in the structure of export financing, mainly linked to financings of foreign direct investments by Austrian companies abroad after the financial crisis, which have now been repaid. Although we believe the financing of these FDIs justifies the reduction in the balance sheet, we acknowledge OKB's continued significance in export financing, which is further highlighted by the amount of guarantees it has granted on Austria'sbehalf. In 2015, OKB administered €3.8 billion in new export guarantees for Austria, slightly below 2014 levels. However, the overall volume of extended export guarantees declined further as expiring guarantee volumes exceeded new guarantee issuances. Accordingly, the volume of export guarantees OKB administered declined for a seventh consecutive year to €25.9 billion, down 42% from its peak in 2008. Export financing picked up in 2015, and disbursements increased by 46% compared with 2014, but overall repayments exceeded disbursements. Outstanding financing contracts (€21.4 billion) and outstanding disbursements (€18.4 billion) contracted further. Repayments should stabilize at lower levels in the next three years as financings after the financial crisis have matured and been repaid.

OKB could provide own guarantees without back-guarantees of the government, which, if provided to a limited extent and thorroughly risk assessed, would not harm the credit quality of OKB. One of our baseline assumptions is that OKB's and the government's strategies are aligned and focus on export credit. If we observed stronger deviations from the government's strategy, which couldresult in lower government support due to increasing commercial risk in OKB's balance sheet, we could negatively reassess our view of the likelihood of government support for OKB.

We note that OKB has never suffered a loan loss on its balance sheet. Its coreearnings in 2015 decreased to €47 million, which are in line with its mandate, have typically been modest and usually range between €50 million and €90 million. This translates into about 17 basis points per average managed assets, such as loans to banks and other financial instruments. The bank's tier 1 capital ratio was 83.1% at year-end 2015, up from 71.1% in 2011,, indicating very strong capital. We understand that these ratios now reflect the reclassification of items following the implementation of the EU's capitalrequirement regulation in OKB's accounting rules.

The stable outlook on OKB reflects that on Austria and our view that, given the legal framework and the irrevocable guarantee on most of the bank's debt, OKB's role for and link with the government are unlikely to change over the next two years. We therefore expect our ratings and outlook on OKB to move in line with those on Austria.

We could lower the ratings if we were to conclude that the government was about to change its relationship with OKB or withdraw its support, including the guarantees. Also, if the bank lost its monopoly position as the government's agency for the export guarantee program, we would consider a downgrade. Additionally, if OKB were to deviate from its current government-approved strategy and to become more involved in its own commercialrisk-related business, we could reassess OKB's role for and link with the government.

We could upgrade OKB if we upgraded Austria and our assessment of an almost certain likelihood of extraordinary support remained the same.

However, we currently view these developments as unlikely.