(The following statement was released by the rating agency)
Dec 21 - Fitch Ratings has affirmed Pekao Bank Hipoteczny SA’s (PBH; ‘A-'/Stable/‘F2’) mortgage covered bonds at ‘A’/Stable following a periodic review of the programme.
The rating is based on PBH ’s Long-term Issuer Default Rating (IDR) of ‘A-', the Discontinuity Cap (D-Cap) of 0 (full discontinuity) and the asset percentage (AP) of 90% that Fitch takes into account in its analysis.
In terms of sensitivity of the covered bonds’ rating, the ‘A’ rating would be vulnerable to downgrade if any of the following occurred: (i) the IDR was downgraded or (ii) the programme AP went above 90%, which is the breakeven level in line with the ‘A’ rating.
For the purpose of its analysis the agency takes into account the AP of 90% the issuer publicly commits to, which supports the one notch uplift from the PBH’s IDR for recoveries given default of the covered bonds.
The D-Cap of 0 is driven by the full discontinuity risk assessment of the liquidity gap and systemic risk component reflecting the absence of any mandatory liquidity provision in Polish covered bonds legislation. Combined with the insufficient marketability of the residential and commercial cover assets the agency considers this risk as the weakest link for the programme.
Fitch has for the first time assigned risk assessments for the D-cap components cover pool-specific alternative management and privileged derivatives. The asset segregation and systemic alternative management components will be assessed by the end of January 2013 when Fitch will have had sufficient time to review the legal opinion received.
The cover pool-specific alternative management assessment (moderate high) reflects the good quality of the data delivered by the issuer, the nature of the cover pool (a mixed pool of commercial and residential loans) and the market IT systems used to manage the cover pool.
As of 30 September 2012 the covered bonds amounted to PLN0.8bn and were secured by a cover pool of PLN1.5bn assets. 52.1% of the cover pool consists of residential mortgage loans, 45.4% of commercial mortgage loans, the remainder are liquid assets. All properties securing the loans are located and distributed across Poland.
All covered bonds are denominated in Polish zloty whereas only 46.1% of the cover assets are denominated in Polish zloty and 49.8% are CHF-denominated, which leads to relatively high currency mismatches. The remaining assets are EUR-(3.6%) and USD-denominated (0.4%). Interest rate mismatches are minor as all assets and liabilities have floating interest rates.
The weighted average remaining life of the cover assets is approximately 10 years, while the weighted average remaining life of the covered bonds is approximately eight years.
The Fitch breakeven AP for the covered bond rating will be affected, among other factors, 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.
The ratings are as follows:
Issuer’s Long-term IDR: ‘A-'/Stable
Covered Bond Rating: ‘A’/Stable
D-Cap: 0 (full discontinuity)
Asset segregation: N/A
Liquidity gap and systemic risk: full discontinuity
Cover pool-specific alternative management: moderate high
Systemic alternative management: N/A
Privileged derivatives: very low