Feb 21 - Fitch Ratings has affirmed National Bank of Greece S.A.'s (NBG;
'CCC'/'C') mortgage covered bonds outstanding under Programme I at 'B-' with a
Negative Outlook and has removed them from Rating Watch Negative (RWN).
The rating action follows a full review of the programme, which has one
outstanding series of covered bonds totalling EUR846.2m. The rating on the
outstanding bonds was on RWN pending the application of Fitch's updated
residential mortgage loss criteria.
The rating is based on NBG's Long-term Issuer Default Rating (IDR) of 'CCC', a
Discontinuity Cap (D-Cap) of 0 (full discontinuity risk) and the asset
percentage (AP) of 53% which Fitch takes into account in its analysis, which
corresponds to the figure published in NBG's monthly investor report. The
Negative Outlook reflects the deteriorating asset performance, the adverse
operating environment and uncertainties surrounding the macro-economic situation
The 'B-' rating would be vulnerable to downgrade if any of the following
occurred: (i) NBG's IDR was downgraded by one or more notches to 'CCC-' or
below; or (ii) the AP that Fitch takes into account in its analysis increased
above Fitch's 'B-' breakeven AP of 55%.
The unchanged D-Cap of 0 is driven by the full discontinuity assessment for the
liquidity gap and systemic risk component; notably, NBG's Programme I features a
one-year extension period in case of an issuer default event which, in Fitch's
view, would not provide sufficient time for a successful asset refinancing given
the highly stressed economic environment in Greece.
As of end-December 2012, the cover pool consisted of approximately 37,500
residential mortgage loans originated by NBG, totalling EUR1.9bn, with a
weighted average current indexed loan-to-value of 58.2% as calculated by the
agency. Fitch has determined a cumulative weighted average frequency of
foreclosure (WAFF) for the cover assets of 30% and a weighted average recovery
rate (WARR) of 77% at 'B'-category.
Fitch has compared the cash flows from the cover pool in a wind-down situation,
subject to stressed defaults and losses and under the management of a third
party, to the payments due under the outstanding covered bonds. The cover assets
have a weighted average life of about 11 years, assuming no prepayments, and the
covered bonds of almost four years. The mismatches between the soft bullet
covered bonds and the amortising cover pool assets expose the programme to
material refinancing risk. Fitch modelled the cost at which the pool would be
refinanced using its updated refinancing spread assumptions (see "Covered Bonds
Rating Criteria - Mortgage Liquidity & Refinance Stress" dated 14 November 2012
The 53% AP Fitch takes into account in its analysis compares with the Fitch
breakeven level of AP of 55% for this programme, which allows the bonds assumed
to be in default in a 'B-' scenario to attain at least 71% recoveries. The Fitch
breakeven AP will be affected, among others, by the profile of the cover assets
relative to outstanding bonds, which can change, even in the absence of new
issuances. Therefore it cannot be assumed to remain stable over time.
All assets and liabilities are EUR-denominated. The cover pool is made up of
fixed-rate assets (12.9%), floating rate assets linked to Euribor (25.8%) and
linked to the ECB reference rate (61.3%) while the outstanding covered bonds pay
a fixed rate of interest. A liability swap is in place with Deutsche Bank AG
(DBAG, 'A+'/'F1+') to hedge the interest rate risk between the floating rate
loans in the cover pool and the fixed-rate owed under the covered bond.
Furthermore, in its cash flow analysis, Fitch has stressed the foreclosure
timing assumptions as outlined in the criteria to reflect the extension until
the end of 2013 of the mandatory auction freeze in Greece for debtor's main
residences of up to EUR300,000 (see 'EMEA Criteria Addendum - Greece' dated 8
August 2012 on www.fitchratings.com).
Additional information is available at www.fitchratings.com.
The ratings above were solicited by, or on behalf of, the issuer, and therefore,
Fitch has been compensated for the provision of the ratings.
Applicable criteria, 'Covered Bonds Rating Criteria', dated 10 September 2012,
'Covered Bonds Counterparty Criteria', dated 25 July 2012, 'EMEA RMBS Master
Rating Criteria', dated 7 June 2012, 'EMEA Criteria Addendum - Greece', dated 8
August 2012, 'Covered Bonds Rating Criteria - Mortgage Liquidity & Refinancing
Stress Addendum', dated 14 November 2012, and 'Criteria for Rating Caps in
Global Structured Finance Transactions', dated 2 August 2012, are available on
Applicable Criteria and Related Research:
Covered Bonds Rating Criteria - Amended
Covered Bonds Counterparty Criteria
EMEA RMBS Master Rating Criteria
EMEA RMBS Criteria Addendum - Greece - Mortgage and Cashflow Assumptions
Covered Bonds Rating Criteria - Mortgage Liquidity & Refinance Stress Addendum
Criteria for Rating Caps in Global Structured Finance Transactions