Fitch Ratings has downgraded mBank S.A.'s senior preferred (SP) long-term debt rating to 'BBB-' from 'BBB' and senior non-preferred (SNP) long-term debt rating to 'BB+' from 'BBB-' and removed them from Rating Watch Negative (RWN).

mBank's Issuer Default Ratings (IDRs) and Viability Rating (VR) are unaffected by this rating action and the Key Rating Drivers remain as published in the last rating action commentary (see 'Fitch Revises mBank's Outlook to Stable; Places Debt on RWN', dated 13 July 2023, at www.fitchratings.com).

The downgrade of mBank's senior long-term debt ratings primarily reflects the change in Fitch's expectations about the structure of the bank's resolution buffer, including likely more extensive use of SP debt, and Fitch's forecasts for mBank's capital ratios and requirements. The bank's SNP and more junior debt buffer will not sustainably exceed 10% of risk-weighted assets (RWA).

Key Rating Drivers

mBank's SP debt ratings are aligned with its IDRs and its SNP debt is rated one notch below its Long-Term IDR to reflect the risk of below-average recoveries for SNP creditors in a resolution. This is because we expect mBank to use SP debt to meet its resolution buffer requirements, and we do not expect SNP and more junior debt to sustainably exceed 10% of mBank's resolution group's RWAs. Fitch's assessment of mBank's resolution debt buffer considers both mBank's total and subordinated levels of minimum resolution requirements, including combined buffer requirements, and our expectation around the bank's growth and risks tied to evolution of its capital buffers.

mBank's common equity Tier 1 (CET1) ratio stood at 14.6% at end-3Q23. The capital structure of the bank is supplemented by about PLN2.7 billion of outstanding subordinated debt (of which about PLN2 billion is Tier 2-eligible), bringing the total capital ratio to 16.9% at end-3Q23. We estimate the bank's SNP and more junior debt reached about 9.7% of the bank's 3Q23 of RWAs, but has likely peaked.

We believe the bank's core capital ratios will remain stable over Fitch's rating horizon. However, we estimate that the bank's growth, expected internal capital generation and risks around its foreign-currency mortgage loan portfolio mean that the SNP and more junior debt buffers will likely narrow over the next few years, increasing the possibility of using SP debt to meet resolution requirements.

mBank's IDRs are driven by its standalone creditworthiness as reflected in its VR. The 'bbb-' VR primarily reflects the bank's well-established domestic franchise, conservative risk appetite, solid capital position and a healthy funding and liquidity profile, but also a sizable exposure to legacy foreign-currency mortgage loans, which weighs on our assessment of the bank's company profile and financial prospects.

Rating Sensitivities

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

A downgrade of the bank's IDR would lead to a downgrade of the bank's SP and SNP debt ratings.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

An upgrade of the bank's IDR would lead to an upgrade of the bank's SP and SNP debt ratings.

We would upgrade the SP and SNP debt ratings by one notch if we expect mBank to build up and maintain on a sustained basis a buffer of subordinated and SNP debt of at least 10% of RWAs or if we expect the bank to be able to comfortably and sustainably meet its total resolution debt requirements without using SP debt.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

mBank has an ESG Relevance Score of '4' for Management Strategy due to a high government intervention risk in the Polish banking sector, which affects mBank's operating environment, its business profile and ability to define and execute on its strategy. This has a negative impact on the credit profile, and is relevant to the rating[s] in conjunction with other factors.

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

RATING ACTIONS

Entity / Debt

Rating

Prior

mBank S.A.

Senior preferred

LT

BBB-

Downgrade

BBB

Senior non-preferred

LT

BB+

Downgrade

BBB-

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VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.

APPLICABLE CRITERIA

National Scale Rating Criteria (pub. 22 Dec 2020)

Bank Rating Criteria (pub. 02 Sep 2023) (including rating assumption sensitivity)

ADDITIONAL DISCLOSURES

Dodd-Frank Rating Information Disclosure Form

Solicitation Status

Endorsement Policy

ENDORSEMENT STATUS

mBank S.A. 	EU Issued, UK Endorsed

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