Jan 9 - Fitch Ratings has affirmed ING Bank N.V.'s (ING, 'A+'/Stable/'F1+')
mortgage covered bonds at 'AAA' with a Stable Outlook, following a full review
of the programme. The outstanding EUR28.7bn hard-bullet covered bonds are
guaranteed by ING Covered Bond Company B.V. (the CBC), a special purpose company
established under Dutch Law.
Under the covered bonds rating criteria, a Discontinuity Cap (D-Cap) of 4
applies to the programme. Combined with ING's Long-term Issuer Default Rating
(IDR) of 'A+', this allows for a maximum achievable rating of 'AAA' for the
The 'AAA' rating would be vulnerable to a downgrade if any of the following
occurred: (i) the IDR was downgraded by three notches or more to 'BBB+'; or (ii)
the D-Cap fell by at least three categories to 1 (very high risk); or (iii) the
AP that the agency takes into account in its analysis increased above Fitch's
'AAA' breakeven AP of 81%. The covered bonds have a Stable Outlook, because the
Outlooks on both the issuer and the sovereign are Stable.
The agency takes into account the highest observed AP of the past 12 months
(63.8%) in its analysis, as the issuer's Short-term IDR is above 'F3'. This
allows the covered bonds to be rated 'AAA' on a probability of default (PD)
basis. The 'AAA' breakeven AP of 81.0% supports a 'AA' rating on a PD basis and
a 'AAA' rating considering recoveries given default.
The D-Cap of 4 is driven by the moderate risk assessment of asset segregation,
liquidity gap & systemic risk and the privileged derivatives components, which
are the weakest of the D-Cap components. The systemic and the cover pool
specific alternative management components were assessed at low risk from a
discontinuity point of view and have not changed since the previous D-Cap
analysis (see "Fitch Puts 2 Dutch Covered Bonds on RWN; Assigns Dutch & Irish
Programmes D-Caps & Outlooks" dated 12 September 2012 at www.fitchratings.com).
Fitch now communicates the maximum level of AP that supports the assigned
covered bond rating. The current 'AAA' breakeven AP is lower than the previous
supporting AP of 82.1%. The decrease is mainly driven by a slight deterioration
of the asset quality. Since the last analysis, mortgages with higher original
loan-to-value ratios (LTV) have been added to the pool. The results also reflect
falling house prices in the Netherlands, lower prepayment rate assumptions for
Dutch mortgages and Fitch's higher refinancing cost assumptions for the
At end-November 2012, the cover pool consisted of EUR42.0bn of residential
mortgage loans. The pool consisted of 446,578 loan parts to 243,370 borrowers,
secured on residential properties in the Netherlands with 65.3% on pure
interest-only repayments. The mortgage portfolio had a WA current indexed LTV of
78.6%. The cover pool assets are diversified over the Netherlands, with the
highest concentrations in Zuid-Holland 21.5%, Noord-Holland 21.0% and
Noord-Brabant 12.9%. In a 'AAA' scenario, Fitch has calculated the pool's
cumulative WA frequency of foreclosure at 14.8% and a WA recovery rate of 51.2%.
The WA life of the cover assets is 22.0 years, as compared with 7.2 years for
the covered bonds. Fitch modelled the mismatches between the cover pool and the
covered bonds post a theoretical default of the issuer and assumed that cover
pool assets could be sold at a stressed price in order to pay the covered bonds
in a timely fashion. Interest received from the cover assets are swapped into
floating-rate interest through a total return swap agreement entered into with
ING Bank N.V. The CBC has also entered into covered bond swap agreements to
hedge interest rate and currency risk.
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 issuances.
Therefore it cannot be assumed to remain stable over time.
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 Sept 2012,
Counterparty Criteria', dated 25 July 2012, 'EMEA Residential Mortgage Loss
Criteria', dated 7 June 2012, 'EMEA RMBS Criteria Addendum - Netherlands', dated
14 June 2012 and 'Covered Bond Rating Criteria - Mortgage Liquidity & Refinance
Stress Addendum', dated 14 November 2012 are available on www.fitchratings.com.
Applicable Criteria and Related Research:
Covered Bonds Rating Criteria - Amended
Covered Bonds Counterparty Criteria
EMEA Residential Mortgage Loss Criteria
EMEA Criteria Addendum - Netherlands - Mortgage Loss and Cash Flow Assumptions -
Covered Bonds Rating Criteria - Mortgage Liquidity & Refinance Stress Addendum