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Fitch Revises Outlook on Pekao Bank Hipoteczny's Mortgage Covered Bonds to Stable; Affirms at 'A'
September 4, 2014 / 4:27 PM / 3 years ago

Fitch Revises Outlook on Pekao Bank Hipoteczny's Mortgage Covered Bonds to Stable; Affirms at 'A'

(The following statement was released by the rating agency) FRANKFURT/LONDON, September 04 (Fitch) Fitch Ratings has revised the Outlook on Pekao Bank Hipoteczny's (PBH; A-/F2/Stable) mortgage covered bonds to Stable from Positive and affirmed the rating at 'A'. KEY RATING DRIVERS The Outlook revision reflects Fitch's view that the programme cannot support recoveries above 51% in rating scenarios above 'A'. This results from the risk of time subordination for the longest-dated series of covered bonds given the absence of a clear cross-default clause among different series of covered bonds in Polish covered bond legislation, the assumed credit loss and the programme's significant foreign exchange mismatches. This is reflected in the absence of a recovery uplift. The rating is based on PBH's Long-term Issuer Default Rating (IDR) of 'A-', a one-notch IDR uplift, an unchanged Discontinuity Cap (D-Cap) of 0 (full discontinuity) and the publicly committed asset percentage (AP) of 90% that Fitch takes into account in its analysis. The Stable Outlook on the covered bonds is the same as that on PBH's IDR. The IDR and the IDR uplift result in a rating floor of 'A' irrespective of the actual asset percentage (AP). As a result, Fitch's breakeven AP has increased to 100% from 90%. The IDR uplift of 1 reveals Fitch's view that resolution methods other than liquidation would be likely for PBH's owner, Bank Pekao SA, given its large size in the Polish market. The uplift indicates the degree of protection in the event of a bank's resolution that would prevent the source of payments switching from the issuer to the cover pool. As of 30 June 2014, PBH's PLN1.02bn outstanding mortgage covered bonds were secured by a PLN 1.45bn cover pool, resulting in nominal AP of 70%. The registered loans are exclusively secured by Polish properties and a split between residential (49.2%), commercial mortgages (45.1%) and eligible substitute assets (5.7%) can be observed. The programme exhibits substantial foreign exchange mismatches; primarily arising from 43.9% CHF-denominated assets not being covered by liabilities. Additionally a minor interest rate mismatch exists, with 100% of the assets at floating-rate, compared with only 94% of the covered bonds. The existing market risks are not mitigated by privileged derivatives. RATING SENSITIVITIES The 'A' rating of PBH's mortgage covered bonds would be vulnerable to downgrade if any of the following occurs: (i) the IDR is downgraded by one or more notches to 'BBB+' or lower; or (ii) the sum of notches represented by the IDR uplift and the D-Cap is reduced to zero. The Fitch breakeven AP for the covered bond rating 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 issuance. Therefore the breakeven AP to maintain the covered bond rating cannot be assumed to remain stable over time. Contacts: Primary Analyst Tobias Bayerl Analyst +49 69 768 076 126 Fitch Deutschland GmbH Taunusanlage 17 D-60325 Frankfurt am Main Secondary Analyst Mathias Pleissner Director +49 69 768 076 133 Committee Chairperson Rebecca Holter Senior Director +49 69 768 076 261 Media Relations: Christian Giesen, Frankfurt am Main, Tel: +49 69 768076 232, Email: christian.giesen@fitchratings.com. Additional information is available on www.fitchratings.com. Applicable criteria, 'Covered Bonds Rating Criteria', 08 August 2014, 'Criteria for the Analysis of Commercial Real Estate Loans Securing Covered Bonds', 22 May 2014, 'Criteria for Rating Granular Corporate Balance-Sheet Securitisations, SME CLOs', 05 March 2014, 'Covered Bonds Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum', 04 February 2014, 'Counterparty Criteria for Structured Finance and Covered Bonds', 14 May 2014 and 'Criteria for Rating Securitizations in Emerging Markets' 18 June 2014 are available at www.fitchratings.com. Applicable Criteria and Related Research: Covered Bonds Rating Criteria here Covered Bonds Rating Criteria – Mortgage Liquidity and Refinancing Stress Addendum here Criteria for the Analysis of Commercial Real Estate Loans Securing Covered Bonds here Criteria for Rating Granular Corporate Balance-Sheet Securitisations (SME CLOs) here Counterparty Criteria for Structured Finance and Covered Bonds here Criteria for Rating Securitizations in Emerging Markets 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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