Fitch Affirms mBank Hipoteczny SA's Public Sector Covered Bonds at 'A'; Outlook Negative

Mon May 12, 2014 11:12am EDT

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(The following statement was released by the rating agency) FRANKFURT/LONDON, May 12 (Fitch) Fitch Ratings has affirmed mBank Hipoteczny SA's (mBH; A/Negative/F1) public sector covered bonds' rating at 'A' with a Negative Outlook. KEY RATING DRIVERS The rating is based on mBH's Long-term Issuer Default Rating (IDR) of 'A' and the unchanged Discontinuity Cap (D-Cap) of 0 (full discontinuity risk). The Negative Outlook on the covered bonds' ratings reflects the Negative Outlook on mBH's IDR. The rating is capped at mBH's IDR due to the absence of any mandatory liquidity provision in the Polish covered bonds legislation. Combined with insufficient marketability of loans granted to or guaranteed by Polish local government institutions, we consider this as full discontinuity risk resulting in the D-Cap assessment of 0. As Fitch received only limited information on the cover assets, it could not conduct a full asset analysis. Therefore the agency tested if the publicly committed level of overcollateralisation (OC) of 6% provides stressed recoveries in excess of 51% supporting a recovery uplift. The publicly committed OC was insufficient to achieve recovery prospects commensurate with a higher rating. This result is mainly driven by the assumption of Poland (A-/Stable/F2) to default in a 'A+' scenario. According to the agency's criteria in this scenario stressed defaults and recoveries for loans granted to or guaranteed by Polish local government institutions are assumed to be 80% and 25%, respectively. As of end-March 2014, PLN0.35bn public sector covered bonds were secured by a cover pool of PLN0.45bn assets. Of the cover assets, 28.8% (previously 32.9%) are loans granted to Polish local government institutions and the remaining 72.2% (previously 67.1%) loans are granted to other public entities guaranteed by local government institutions. Since all cover assets and covered bonds are denominated in Polish zloty and bear a floating interest rate, there is no currency risk and only minor interest rate risk due to sometimes different reference rates on the assets and bonds. RATING SENSITIVITIES In terms of sensitivity of the covered bonds' rating, the 'A' rating would be vulnerable to downgrade if mBH's IDR was downgraded by one or more notches. More details on the portfolio and Fitch's analysis will be available in a credit update, which will shortly be available at www.fitchratings.com. Contact: Primary Analyst Martin Kuhn Associate Director +69 768076 132 Fitch Deutschland GmbH Taunusanlage 17 60325 Frankfurt am Main Secondary Analyst Mathias Pleissner Director +69 768076 133 Committee Chairperson Rebecca Holter Senior Director +69 768076 261 Media Relations: Christian Giesen, Frankfurt am Main, Tel: +49 69 768076 232, Email: christian.giesen@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, 'Covered Bonds Rating Criteria' dated 10 March 2014, 'Asset Analysis Criteria for Covered Bonds of European Public Entities dated 30 January 2013, 'Covered Bonds Rating Criteria - Public Sector Liquidity and Refinancing Stress Addendum' dated 7 February 2014 are available at www.fitchratings.com. Applicable Criteria and Related Research: Covered Bonds Rating Criteria here Asset Analysis Criteria for Covered Bonds of European Public Entities here Covered Bonds Rating Criteria – Public Sector Liquidity and Refinancing Stress Addendum here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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