RPT-Fitch Upgrades NBG Programme I Covered Bonds; Negative Outlook

Tue Dec 3, 2013 7:22am EST

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Dec 3 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has upgraded National Bank of Greece S.A.'s (NBG, B-/Stable/B) Programme I mortgage covered bonds to 'B+' from 'B'. The Outlook is Negative.

The rating action follows the upgrade of Greece's Country Ceiling to 'B+' from 'B', which was due to the receding risk of Greek exit from the eurozone, coupled with the demonstrable external market access of non-sovereign entities (see "Fitch Affirms Greece at 'B-'; Outlook Stable" dated 02 December 2013 at www.fitchratings.com)

The unchanged Discontinuity Cap (D-Cap) of 0 for NBG's Programme I corresponds to a full discontinuity assessment, which is driven by the liquidity gap and systemic risk component. It reflects Fitch's view that the extendible maturity feature of 12 months would not be sufficient to successfully refinance the cover assets in the event of an issuer default due to a highly stressed economic environment in Greece.

The Negative Outlook on the covered bond programme reflects the deteriorating asset performance and the adverse operating environment for Greek banks.

KEY RATING DRIVERS

The Programme I rating is based on NBG's IDR, the D-Cap of 0 and the asset percentage (AP) of 55%, which Fitch takes into account in its analysis and corresponds to the figure published in NBG's monthly investor report. The 55% AP would provide for at least 91% recoveries on the bonds assumed to be in default and would allow a three-notch uplift according to Fitch's methodology.

Nevertheless, the breakeven AP calculated by Fitch for the current rating is 75%. This level enables a two-notch uplift above NBG's IDR, as it provides at least 71% stressed recoveries given default on the covered bonds. The rating of the NBG Programme I covered bonds is constrained by the Country Ceiling of the Greek sovereign.

Fitch has compared the cash flows from the cover pool in a wind-down situation, subject to stressed defaults and losses and under the management of a third party, with the payments due under the outstanding covered bonds. The cover assets have a weighted average remaining term of about 11.3 years and the covered bonds of 3.3 years. The mismatches between the soft bullet covered bonds and the amortising cover pool assets expose the programme to material refinancing risk. A liability swap is in place with Deutsche Bank AG (A+/Stable/F1+) to hedge the interest rate risk between the floating rate loans in the cover pool and the fixed-rate owed under the covered bond.

RATING SENSITIVITIES

The rating of the NBG Programme I covered bonds would be vulnerable to downgrade if any of the following occurred: (i) NBG's IDR was downgraded below 'B-'; (ii) the programme AP went above Fitch's 'B+' breakeven AP of 75%; (iii) Greece's Country Ceiling was downgraded below 'B+'.

Fitch's breakeven AP for the covered bond ratings will be affected, among others, by 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 to remain stable over time.

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