TEXT-Fitch affirms AIB Mortgage Bank's covered bonds at 'A'

Tue Oct 2, 2012 12:10pm EDT

Oct 2 - Fitch Ratings has affirmed AIB Mortgage Bank's (AIBMB) mortgage
covered securities (MCS) at 'A' with a Negative Outlook following a review of
the programme.

The total outstanding MCS equates to EUR11.19bn and all benefit from a 12-month
extendable maturity from their expected maturity dates. AIBMB is a wholly-owned
subsidiary of AIB Bank plc (AIB; 'BBB'/Negative/'F2') and a member of the AIB
Group.

The MCS's rating is based on AIB's Long-term Issuer Default Rating (IDR) of
'BBB' and a D-Cap of 1 (very high) and the overcollateralisation (OC) that Fitch
takes into account in it analysis, the combination of which enables the MCS to
be rated as high as 'BBB+' on a probability of default (PD) basis. As AIB is
rated 'F2' Fitch only gives credit to the voluntary public commitment in place
which currently stands at 52%. AIBMB confirmed to Fitch that they shortly intend
to increase the publicly committed level of OC to at least 54.2%. This is
sufficient to pass 'BBB+' stress scenarios, and provides for high recoveries
given default of the covered bonds in a 'A' scenario.

The D-Cap of 1 is driven by the very high risk assessment of the liquidity gap &
systemic risk component, which is the weakest of the D-Cap components. The cover
pool-specific component is assessed as moderate and the systemic alternative
management component is assessed as very low risk from a discontinuity point of
view. The asset segregation and privileged derivative are assessed as low (see
"Fitch Puts 2 Dutch Covered Bonds on RWN; Assigns Dutch & Irish Programmes
D-Caps & Outlooks" dated 12 September 2012 at www.fitchratings.com).

The very high risk assessment of liquidity gap and systemic risk is due to the
Irish sovereign rating of 'BBB+' and the concerns over the ability to liquidate
the pool in a timely manner if needed post issuer default. It also incorporates
a three-month interest reserve that protects against liquidity gaps following
issuer insolvency and a 12-month extendible maturity on the MCS. The asset
segregation of the cover pool for Irish programmes benefits from the strong
provisions of the Irish ACS Act. The D-Cap also assesses the role of the
National Treasury Management Association, having the obligation to step in and
manage cover pools where an alternative manager cannot be found post issuer
default and the adequate IT systems and processes in place to provide timely
delivery of data.

The OC supporting the current 'BBB+' rating on a probability of default (PD)
basis and 'A' incorporating recoveries, given default of the MCS, has increased
to 54.2% from 52.2% in May 2012. The main drivers for the increase of the OC
were, the update of Fitch's modelling assumptions for Ireland earlier this year
(see 'EMEA Criteria Addendum - Ireland' dated 01 August 2012 on
www.fitchratings.com). Fitch also updated its refinancing spreads assumptions
for Ireland since the last review and these have been applied in the cashflow
model. Finally, the results were also driven by the asset and liability
mismatches and the bonds' weighted average swap margin, which increased due to
some bond redemptions.

At end-June 2012, the cover pool consisted of EUR17.8bn of residential mortgage
loans and EUR75m of substitution assets held in accounts with AIB and Barclays
Bank plc ('A'/Stable/'F1'). The pool consisted of 126,212 loans secured on
residential properties in Ireland with 9.8% on interest only repayments and 21%
buy-to-let loans. The mortgage portfolio had a weighted average (WA) original
loan-to-value ratio (LTV) of 75.1% and a WA current indexed LTV of 106%. The
cover pool assets are diversified over Ireland, with the highest concentrations
in Dublin (37%). In a 'AA' scenario, Fitch has calculated the pool's cumulative
WA frequency of foreclosure at 35.6% and a WA recovery rate of 36.5%.

Fitch will monitor the key characteristics of the cover assets and outstanding
covered bonds on an on-going basis, and check whether the OC taken into account
in its analysis provides protection commensurate with the rating. The level of
OC supporting the rating is affected by, among other factors, the profile of the
cover assets relative to outstanding covered bonds, which can change over time,
even in the absence of new issuances. Therefore, it cannot be assumed that the
rating will remain stable over time.Additional information is available at www.fitchratings.com.

The ratings above were solicited by, or on behalf of, the issuer, and therefore,
Fitch has been compensated for the provision of the ratings.

Applicable criteria, 'Covered Bonds Rating Criteria', dated 10 Sept 2012,
'Covered Bonds Counterparty Criteria', dated 25 July 2012, 'EMEA Residential
Mortgage Loss Criteria Addendum - Ireland', dated 01 August 2012 and 'EMEA
Residential Mortgage Loss Criteria', dated 7 June 2012 are available on
www.fitchratings.com

Applicable Criteria and Related Research:
Covered Bonds Rating Criteria - Amended
Covered Bonds Counterparty Criteria
EMEA Residential Mortgage Loss Criteria
EMEA Criteria Addendum - Ireland - Mortgage Loss and Cash Flow Assumptions