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Fitch Rates ASB Bank's Series 2016-2 EUR500m Covered Bonds 'AAA'; Outlook Stable
October 19, 2016 / 12:16 AM / a year ago

Fitch Rates ASB Bank's Series 2016-2 EUR500m Covered Bonds 'AAA'; Outlook Stable

(The following statement was released by the rating agency) SYDNEY, October 18 (Fitch) Fitch Ratings has assigned ASB Bank Limited's (ASB, AA-/Stable/F1+) Series 2016-2 EUR500m mortgage covered bonds a rating of 'AAA'. The Outlook is Stable. The fixed-rate bond is due in October 2023, and benefits from a 12-month extendable maturity. Series 2016-2 is issued by ASB Finance Limited (ASBFL), which is a special purpose vehicle guaranteed by ASB for offshore issuance from its London branch. This issuance brings the total outstanding covered bond issuance to NZD3.97bn, of which NZD3.47bn is issued by ASBFL and NZD500m is issued by ASB. KEY RATING DRIVERS The rating is based on ASB's Long-Term Issuer-Default Rating (IDR) of 'AA-', a Discontinuity Cap of 2 notches and the asset percentage (AP) that Fitch relies on in its analysis being the highest nominal AP in last 12 months at 71.7%. This provides more protection than Fitch's 'AAA' breakeven AP of 85.5%. The Outlook on the covered bonds reflects the Stable Outlook on ASB's IDR. Fitch has updated the 'AAA' breakeven AP to 85.5% from 85% as a result of improved asset and liability mismatches in the programme after the new issuance. This result corresponds to a breakeven over-collateralisation (OC) of 17%. The change is reflected through a reduction of the asset disposal loss component to 20.2% from 21.7%. However this positive impact was tempered by the reduction of excess spread modelled by Fitch following the agency's updated prepayment assumptions for New Zealand, which is reflected in the cash flow valuation component reducing the OC by 6.3%. The credit loss component remained stable at 4.9%. As of end-September 2016, the cover pool consisted of 37,037 loans secured by first-ranking mortgages of New Zealand residential properties with a total outstanding balance of NZD6.2bn. The cover pool's weighted-average loan/value ratio was 47.7% and the weighted-average seasoning of the loans was 41 months. The cover pool includes loans linked to orbit-loans (an at-call secured line of credit), which in Fitch's opinion, increases the portfolio's credit risk. The weighted-average residual life of the cover assets is 13.4 years and the liabilities 3.3 years. RATING SENSITIVITIES The 'AAA' rating would be vulnerable to a downgrade should any of the following occur: ASB Bank Limited 's IDR is downgraded by two notches; the D-Cap falls by two notches; or the AP that Fitch takes into account in our analysis rises above the 'AAA' breakeven AP of 85.5%. Fitch's 'AAA' 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, it cannot be assumed that the 'AAA' breakeven AP, which maintains the covered bond rating, will remain stable over time. Contact: Primary Analyst Sambit Agasti Analyst +61 2 8256 0337 Fitch Australia Pty Ltd. Level 15, 77 King Street, Sydney NSW 2000 Secondary Analyst Claire Heaton Senior Director +61 2 8256 0361 Committee Chairperson Ben McCarthy Managing Director +61 2 8256 0388 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com The source of information used to assess these ratings was ASB Bank Limited. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated bonds is public. Applicable Criteria APAC Residential Mortgage Criteria (pub. 30 Aug 2016) here Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016) here Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum (pub. 18 Jul 2016) here Covered Bonds Rating Criteria (pub. 11 Mar 2016) here Covered Bonds Rating Criteria - Mortgage Liquidity and Refinancing Stress Addendum (pub. 23 Sep 2015) here Fitch's Mortgage Covered Bond Refinancing Stresses - Excel File (pub. 12 Feb 2016) here Global Bank Rating Criteria (pub. 15 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1013334 Solicitation Status here Endorsement Policy 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 WEB SITE AT 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. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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