Fitch Ratings has affirmed
KEY RATING DRIVERS
The OBG's 'AA' rating is based on
The OBG are rated at their maximum achievable rating in line with
The covered bonds are rated six notches above the bank's Long-Term IDR. This is out of a maximum achievable uplift of 10 notches, consisting of a resolution uplift of two notches, a payment continuity uplift (PCU) of six notches and a recovery uplift of two notches.
In its analysis, Fitch relies on the highest level of AP recorded in the past 12 months, which is 72.3% as of
OC Protection
The revised 'AA' break-even AP of 83.0% (down from 85.5% previously) is equivalent to an OC of 20.5% and considers an asset-and-liability mismatch (ALM) loss of 18.0% (versus 14.4% previously) and an unchanged credit loss of 2.5%, which reflects the stable cover pool composition.
The revision of the ALM loss was driven by an increased share of fixed-rate loans (65.6% as at
The analysis considers the presence in the cover pool of inflation-linked loans (24.5%; down from 25.7% at last review). For these loans, the instalment amount, which comprises interest and principal, resets every 12 months and its increase is capped at the inflation rate at that point. Changes in interest rates at the reset date may determine a slower or faster principal repayment.
For inflation-linked loans originated before
In an increasing interest-rate scenario, the amortisation profile of inflation-linked loans is stressed assuming an inflation rate equal to half of the corresponding interest rate index, leading to a longer amortisation profile. In addition, the interest component of the instalment that exceeds the instalment amount is not paid immediately, as the increase of the instalment amount is capped at the inflation rate.
Uplifts
The two-notch resolution uplift reflects that collateralised covered bonds in
The six-notch PCU reflects the principal liquidity protection provided by a 12-month maturity extension, as well as a dynamic reserve that covers three months of senior expenses and interest payments.
The recovery uplift for the programme is two notches as the 'A+' timely payment rating level of the OBG is in the investment-grade category and Fitch has not identified any material downside risk to recoveries given default. All cover assets and covered bonds are euro-denominated.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The documented counterparty provisions limit the covered bonds' maximum achievable rating to 'AA', after factoring in two notches of recovery.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The covered bonds would be vulnerable to a downgrade if (i)
Fitch's breakeven AP for the covered bonds' 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 issuance. Therefore, the breakeven AP to maintain the covered bonds' rating cannot be assumed to remain stable over time.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The covered bonds' rating is linked to the IDR of the issuing entity.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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