December 19, 2017 / 11:02 AM / a year ago

Fitch Affirms NBG I Covered Bonds Programme at 'B'

(The following statement was released by the rating agency) MILAN/LONDON, December 19 (Fitch) Fitch Ratings has affirmed National Bank of Greece S.A.'s (NBG, RD/RD/ccc/RWE) covered bond programme I (NBG I) at 'B' with Positive Outlook. The rating action follows the segregation of EUR1.2 billion assets for the benefit of the programme, performed on 30 November 2017. KEY RATING DRIVERS The rating of the covered bonds is capped by Greece's 'B' Country Ceiling. The Positive Outlook reflects that on Greece's Issuer Default Rating (IDR) and the strong protection offered via the 25% minimum contractual over-collateralisation (OC), which offsets credit losses in a 'B' rating scenario and provides a large buffer above the 5.3% 'B' breakeven OC. The Rating Watch Evolving (RWE) placed on NBG's 'ccc' Viability Rating (VR) (see Fitch Places Certain Bank Ratings on Rating Watch on Criteria Exposure Draft, dated 14 December 2017) has no impact on the covered bonds rating. This is because the uplift factors enable the covered bonds' rating to be maintained regardless of our assessment of the bank's VR within the 'ccc' category, following the implementation of the exposure draft on Fitch's Bank Rating Criteria. The rating cap implies NBG I's covered bonds are only able to benefit from one notch of recovery uplift - out of the three assigned - from the 'B-' rating floor that is represented by NBG's 'ccc' VR as adjusted by the IDR uplift of two notches. In a scenario of a covered bonds default, Fitch would expect at least good recovery prospects as the cover pool comprise Greek residential loans secured by mortgages. The revised 'B' credit loss of 24.7% (from 11.9%) on the cover pool follows the implementation of the European RMBS Rating Criteria (October 2017) and the asset transfer. The weaker credit profile compared with the prior composition is mainly driven by the share of restructured and rescheduled loans (increasing to 16.8% in November 2017 from 5.1% in June 2017), and loans with an original term to maturity greater than 30.5 years (increasing to 40.1% from 26.1%). Besides this, the cover pool is almost nine years-seasoned, and the majority of restructured loans are currently performing. The IDR uplift of two notches reflects that NBG's Long-Term IDR is not support-driven (institutional or by the sovereign) as well as a low risk of under-collateralisation at the point of resolution. This is based on Fitch's assessment on the Greek legal framework, the presence of an asset monitor, asset eligibility criteria and minimum legal and contractual levels of OC, as applicable. Fitch payment continuity uplift (PCU) for the programme is six notches, reflecting its soft-bullet amortisation profile and a liquidity reserve that covers at least three months of interest due on the covered bonds and senior expenses. However, this is not a current driver of the rating. CRITERIA VARIATION The agency has not applied the 2.5x foreclosure frequency adjustment to loans with an original term to maturity longer than 30.5 years and which have been restructured (10.8% of the cover pool). This variation from the agency's European RMBS Rating Criteria is because longer maturity dates are a consequence of restructuring, and the credit analysis on restructured loans already captures foreclosure frequency adjustments based on the borrower's payment behaviour. While no model-implied rating impact is linked to this variation, the Outlook on the rating would have been Stable in the absence of this variation. RATING SENSITIVITIES Changes in Greece's Country Ceiling could affect the rating of National Bank of Greece's covered bond programme I. In particular and all else being equal, an upgrade of the Country Ceiling will lead to an upgrade of the covered bonds programme as long as the relied-upon overcollateralisation (OC) of the programme is sufficient to compensate for the stresses commensurate with the Country Ceiling level. An increase of the cover pool credit loss estimate above the 25% contractual OC would lead to a revision of the Outlook to Stable, all else being equal. Contact: Primary Analyst Alessandro Bosello Analyst +39 02 879 087 278 Fitch Italia S.p.A. Via Morigi 6, 20123 Milan Secondary Analyst Roberto Del Ragno Director +39 02 879 087 206 Committee Chairperson Helene Heberlein Managing Director +33 1 44 29 91 40 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: Additional information is available on Applicable Criteria Covered Bonds Rating Criteria (pub. 01 Dec 2017) here European RMBS Rating Criteria (pub. 27 Oct 2017) here Fitch's Interest Rate Stress Assumptions for Structured Finance and Covered Bonds - Excel File (pub. 17 Feb 2017) here Global Bank Rating Criteria (pub. 25 Nov 2016) here Structured Finance and Covered Bonds Country Risk Rating Criteria (pub. 18 Sep 2017) here Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub. 17 Feb 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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