October 17, 2013 / 2:52 PM / 6 years ago

Fitch Affirms Greek Banks' Mortgage Covered Bonds at 'B'; Negative Outlook

(The following statement was released by the rating agency) LONDON, October 17 (Fitch) Fitch Ratings has affirmed Alpha Bank A.E.'s (Alpha, B-/Stable/B), Eurobank Ergasias S.A.'s (Eurobank, B-/Stable/B), National Bank of Greece S.A.'s (NBG, B-/Stable/B) and Piraeus Bank S.A.'s (Piraeus, B-/Stable/B), Greek mortgage covered bonds at 'B' with Negative Outlook as follows: Alpha EUR3.75bn covered bonds: affirmed at 'B'; Outlook Negative Eurobank EUR2.45bn covered bonds: affirmed at 'B'; Outlook Negative NBG (programme I) EUR0.846bn covered bonds: affirmed at 'B'; Outlook Negative NBG (programme II) EUR6.9bn covered bonds: affirmed at 'B'; Outlook Negative Piraeus EUR1.25bn covered bonds: affirmed at 'B'; Outlook Negative The rating actions follow a full review of the programmes and, notably, the application of the agency's updated covered bond master criteria and assumptions for assessing credit risk of Greek residential mortgage loans pools (see "Covered Bonds Rating Criteria" dated 4 September 2013 and "EMEA Criteria Addendum - Greece" dated 25 July 2013 at www.fitchratings.com). The Discontinuity Cap (D-Cap) remains unchanged for all programmes. Alpha's, Eurobank's, NBG's programme II and Piraeus's covered bond programmes have a D-Cap of 3 (moderate high discontinuity risk), despite their pass-through structure; the D-Cap assessment is driven by potential systemic challenges related to the alternative management component. The D-Cap of 0 for NBG's programme I reflects a full discontinuity assessment, which is driven by the liquidity gaps and systemic risk component. It reflects Fitch's view that the extendible maturity feature of 12 months would not be sufficient to successfully refinance the cover assets in the event of an issuer default (see "Fitch Assigns Portuguese, Greek and Cypriot Covered Bonds Outlooks & D-Caps" dated 19 September 2012 at www.fitchratings.com). In its cash flow analysis, Fitch has modelled interest rate mismatches stemming from fixed-rate loans that switch to a floating-rate regime in the absence of a total return swap. In its stressed recovery analysis, the agency has kept unchanged its refinancing spread assumptions. The Negative Outlook on all Greek covered bond programmes reflects deteriorating asset performance and an adverse operating environment for Greek banks. KEY RATING DRIVERS Alpha's covered bonds The rating of Alpha's covered bonds is based on the issuer's Long-Term Issuer Default Rating (IDR), the D-Cap of 3 and the minimum level of over-collateralisation (OC) of 5.26% required by the Greek covered bond law, which is equivalent to the 95% asset percentage (AP), and which Fitch relies upon for its analysis. This level of OC allows at least 51% recoveries on bonds assumed to default in a stress scenario, hence a one-notch uplift above the IDR of Alpha. As of end-June 2013, the cover pool consisted of approximately 78,500 residential mortgage loans originated by Alpha, totalling approximately EUR4.2bn, with a weighted average current indexed loan-to-value (WA Indexed CLTV) of 72% and weighted average original loan-to-value (WA OLTV) of 74.5% as calculated by the agency using a random sample. Fitch has determined a cumulative weighted average frequency of foreclosure (WAFF) for the cover assets of 27.3% and a weighted average recovery rate (WARR) of 66.2% at the 'B' category. All assets and liabilities are denominated in euros. The cover pool is made up of fixed-rate assets (1.7%), floating-rate assets (87.7%) and fixed-rate assets that revert to floating during the life of the loan (10.6%). Eurobank's covered bonds The rating of Eurobank's covered bonds is based on the issuer's IDR, the D-Cap of 3 and the minimum level of OC of 5.26% required by the Greek covered bond law, which is equivalent to the 95% AP and which Fitch relies upon for its analysis. This level of OC allows at least 51% recoveries on bonds assumed to default in a stress scenario, hence a one-notch uplift above the IDR of Eurobank. As of end-June 2013, the cover pool consisted of approximately 46,000 residential mortgage loans originated by Eurobank, totalling EUR2.8bn, with a WA Indexed CLTV of 58.8% and WA OLTV of 68% as calculated by the agency. Fitch has determined a cumulative WAFF for the cover assets of 28.9% and a WARR of 77.3% at the 'B' category. All assets and liabilities are denominated in euros. The cover pool is made up of fixed-rate assets (0.3%), floating-rate assets (94.9%) and fixed-rate assets that revert to floating during the life of the loan (4.8%). NBG's programme I covered bonds The rating on NBG programme I is based on the issuer's IDR, the D-Cap of 0 and an AP commitment of 55% as published in NBG's monthly investor report which Fitch takes into account in its analysis. This AP commitment is lower than the 95% break-even AP calculated by Fitch for the current rating that would allow an uplift of up to three notches. However, the rating of the covered bonds is constrained by the current Country Ceiling of 'B'. As of end-June 2013, the cover pool consisted of approximately 35,500 residential mortgage loans originated by NBG, totalling EUR1.8bn, with a WA Indexed CLTV of 58.4% and WA OLTV of 61.9% as calculated by the agency. Fitch has determined a cumulative WAFF for the cover assets of 29.6% and a WARR of 79.7% at the 'B' category. All assets and liabilities are denominated in euros. The cover pool is made up of fixed-rate assets (10%), the majority of which revert to floating during the life of the loan, and floating-rate assets (90%) while the outstanding covered bonds pay a fixed rate of interest. Fitch has compared the cash flows from the cover pool in a wind-down scenario, 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 remaining term of about 11.3 years and the covered bonds of 3.3 years. The mismatches between the soft bullet covered bonds and the amortising cover pool assets expose the programme to material refinancing risk. A liability swap is in place with Deutsche Bank AG (DBAG, A+/Stable/F1+) to hedge the interest rate risk between the floating-rate loans in the cover pool and the fixed-rate covered bonds. NBG's programme II covered bonds The rating of NBG's programme II covered bonds is based on the issuer's IDR, the D-Cap of 3 and the minimum level of OC of 5.26% required by the Greek covered bond law which is equivalent to the 95% AP and which Fitch relies upon for its analysis. This level of OC allows at least 51% recoveries on bonds assumed to default in a stress scenario, hence a one-notch uplift above the IDR of NBG. As of end-June 2013, the cover pool consisted of approximately 219,500 residential mortgage loans originated by NBG, totalling EUR9.4bn, with a WA Indexed CLTV of 61.7% and WA OLTV of 65.2% as calculated by the agency using a random sample. Fitch has determined a cumulative WAFF for the cover assets of 30% and a WARR of 73.2% at the 'B' category. All liabilities are denominated in euros while 3.4% of the cover assets are denominated in Swiss francs. Fitch has applied additional stresses for the portion of the pool which is denominated in Swiss francs to reflect the impact of potential adverse exchange rate movements. The cover pool is made up of fixed-rate assets (17.7%) approximately half of which revert to floating during the life of the loan and floating-rate assets (82.3%) while the outstanding covered bonds pay a floating-rate of interest linked to the ECB reference rate. Piraeus's covered bonds The rating of Piraeus's covered bonds is based on the issuer's IDR, the D-Cap of 3 and the minimum level of OC of 5.26% required by the Greek covered bond law, which is equivalent to the 95% AP and which Fitch relies upon for its analysis. This level of OC allows at least 51% recoveries on bonds assumed to default in a stress scenario, hence a one-notch uplift above the IDR of Piraeus. As of end-June 2013, the cover pool consisted of approximately 19,000 residential mortgage loans originated by Piraeus, totalling EUR1.4bn, with a WA Indexed CLTV of 63.5% and WA OLTV of 68% as calculated by the agency. Fitch has determined a cumulative WAFF for the cover assets of 29.3% and a WARR of 74.6% at the 'B' category. All assets and liabilities are denominated in euros. The cover pool is made up of fixed-rate assets (0.4%), floating-rate assets (96.7%) and fixed-rate assets that revert to floating during the life of the loan (2.9%). The outstanding covered bonds pay a floating-rate of interest linked to the one month Euribor rate. RATING SENSITIVITIES The ratings of all Greek covered bond programmes would be vulnerable to a downgrade if the Country Ceiling for Greece is revised downwards by one or more notches. All else being equal the ratings of Alpha's, Eurobank's, NBG's programme II and Piraeus's covered bonds would be vulnerable to a downgrade if the respective banks' IDRs are downgraded by one or more notches. All else being equal the rating of the covered bonds outstanding under NBG's programme I would be vulnerable to downgrade if NBG's IDR is downgraded below 'CCC'. Fitch breakeven AP for the covered bond ratings 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. Contact: Primary Analyst Despoina Pilidou Analyst +44 20 3530 1466 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Paolo Sala Analyst +39 20 8790 87292 Committee Chairperson Federica Fabrizi Senior Director +39 02 8790 87232 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', dated 4 September 2013, 'Counterparty Criteria for Structured Finance and Covered Bonds', dated 13 May 2013, 'Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum', dated 13 May 2013, 'EMEA RMBS Criteria Addendum - Greece - Mortgage and Cashflow Assumptions', dated 25 July 2013, 'EMEA Residential Mortgage Loss Criteria', dated 6 June 2013, 'EMEA RMBS Master Rating Criteria' dated 6 June 2013, 'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions', dated 12 June 2013 and 'Covered Bonds Rating Criteria - Mortgage Liquidity & Refinance Stress Addendum', dated 3 June 2013 are available at www.fitchratings.com. Applicable Criteria and Related Research: Covered Bonds Rating Criteria here Counterparty Criteria for Structured Finance and Covered Bonds here Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum here EMEA RMBS Criteria Addendum – Greece - Mortgage and Cashflow Assumptions - Effective 8 August 2012 to 25 July 2013 here EMEA Residential Mortgage Loss Criteria here Covered Bonds Rating Criteria - Mortgage Liquidity & Refinance Stress Addendum – Effective 14 November 2012 to 3 June 2013 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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