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Fitch Affirms mBank Hipoteczny SA's Mortgage Covered Bonds at 'A'; Outlook Negative
May 12, 2014 / 3:47 PM / 3 years ago

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

(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) mortgage 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 the predominantly commercial cover assets for the mortgage pool, 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 10% provides stressed recoveries in excess of 51%, supporting a one-notch recovery uplift. The publicly committed OC was insufficient to achieve recovery prospects commensurate with a higher rating. This result is mainly driven by stressed defaults and recoveries of 75% and 47%, respectively. As detailed property information was missing, we based our credit risk analysis on conservative assumptions for borrower default probabilities and stressed property values. Additionally, there is significant market risk in the cover pool. Firstly, the bonds are exposed to currency risk, with 76.2% (previously: 97.7%) of the liabilities denominated in Polish zloty and 28.8% (previously: 2.3%) euro-denominated, whereas only 32.3% (previously: 36.1%) of the assets are zloty-denominated. This open position has been decreased by euro bond issuance compared with last analysis but remains substantial. Additionally, there are considerable maturity mismatches, with asset cash flows having a constant amortisation profile over the next 28 years, while 99% of the outstanding covered bonds mature within the next seven years. This risk has also decreased compared with last year's review. The open interest rate position has increased but is less of a concern with more than 99% floating rate assets compared with 89.5% (previously: 100%) floating rate covered bonds. No privileged swaps are registered in the cover pool. As of end-March 2014, PLN2.11bn mortgage covered bonds were secured by a cover pool of PLN2.75bn of assets. The cover pool distribution by asset type is stable. The pool consists predominantly of commercial mortgage loans (97.2%), the remainder being residential loans (1.2%) and substitute assets (1.6%). All properties securing the loans are located in Poland. 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, 'Criteria for the Analysis of Commercial Real Estate Loans Securing Covered Bonds' dated 14 October 2013, 'Covered Bonds Rating Criteria - Mortgage Liquidity and Refinancing Stress Addendum' dated 4 February 2014, 'Criteria for Rating Granular Corporate Balance-Sheet Securitisations (SME CLOs)' dated 5 March 2014 are available at www.fitchratings.com. Applicable Criteria and Related Research: Covered Bonds Rating Criteria here Criteria for the Analysis of Commercial Real Estate Loans Securing Covered Bonds here Covered Bonds Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum here Criteria for Rating Granular Corporate Balance-Sheet Securitisations (SME CLOs) 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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