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Fitch Affirms NBG Programme II Covered Bonds at 'B+'; Outlook Stable
November 20, 2014 / 5:18 PM / 3 years ago

Fitch Affirms NBG Programme II Covered Bonds at 'B+'; Outlook Stable

(The following statement was released by the rating agency) MILAN/LONDON, November 20 (Fitch) Fitch Ratings has affirmed National Bank of Greece S.A.'s (NBG, B-/Stable/B; Viability Rating: b-) Programme II EUR4.87bn mortgage covered bonds at 'B+' with a Stable Outlook. The affirmation follows the recent amendments to the liability structure: i) Series 1, 2, and 3 have been partially cancelled down to an amount of EUR1.15bn, EUR1.2bn and EUR1.35bn from EUR1.5bn, respectively; ii) the maturity of Series 1 and 3 has been extended to 2021 and 2020 from 2015 and 2017, respectively; iii) the base rate index of all outstanding covered bonds has changed to three-month Euribor from the ECB rate for all the series; and iv) the spreads for Series 1 and 2 have been increased to 2.5% and 2.4% from 1.7% and 2%, respectively. In addition, the issuer has committed to an asset percentage (AP) of 80%, lower than the 95% maximum AP required by the Greek covered bond law that Fitch relied upon previously. KEY RATING DRIVERS The 'B+' rating of the covered bonds is based on NBG's Long-term Issuer Default Rating (IDR) of 'B-', an IDR uplift of 1, Discontinuity Cap (D-Cap) of 3 (moderate high discontinuity risk) and the 80% AP that Fitch takes into account in its analysis which provides more protection than the 95% 'B+' breakeven (BE) AP. The Stable Outlook on the covered bonds' rating reflects that on NBG's IDR. The BE AP for the 'B+' rating of the covered bonds issued by NBG under Programme II has not changed. Despite the AP commitment of the issuer of 80%; this level of AP is not adequate to support timely payments in scenarios above the NBG's IDR, as adjusted by the IDR uplift. On a recovery basis, 80% AP does not allow the covered bonds to achieve at least 71%, limiting the recovery uplift to one notch. The 95% BE AP, corresponding to a breakeven over-collateralisation (OC) of 5.3%, provides at least 51% recoveries on the covered bonds assumed to be in default in a 'B+' rating scenario allowing a one-notch uplift from the 'B' tested rating on a probability of default (PD) basis, which itself is floored at the bank's IDR, as adjusted by the IDR uplift. The asset disposal loss component of 58.1% is the major contributor to the BE AP, driven by the high level of refinancing spreads Fitch assumes for Greek residential mortgage loans (900bps at 'B'). The 17.4% 'B+' credit loss represents the impact on the BE OC from the 42.0% weighted average (WA) default rate and the 64.7% WA recovery rate for the mortgage cover assets. The cash flow valuation component of 7.1% reflects open interest rate positions (about 9% of the assets are fixed as compared with all floating rate bonds), as well as significant maturity mismatch. The WA life of the assets is 11.6 years compared with 5.4 years for the liabilities. Fitch's 'B+' breakeven OC is lower than the sum of the components because the agency gives credit for a minimum recovery given default of 51%, rather than 100%, in its 'B+' scenario. The unchanged D-Cap of 3 (moderate high discontinuity risk) reflects Fitch's view that, although the conditional pass-through amortisation structure of the covered bonds minimises the risk of refinancing of the assets, a transition to an alternative manager may encounter systemic and operating challenges, if the source of payments of the covered bonds switches from the issuer to the cover pool. The IDR uplift of 1 reflects the covered bonds exemption from bail-in, the issuer's large size in the domestic market and its interconnectedness with the country so that Fitch considers that resolution by other means than liquidation is likely (see 'Fitch Revises Outlook on Greek CVBs; Maintains Cypriot CVB on RWN on Criteria Amendments' dated 1 April 2014 at Fitch takes into account the public commitment of the issuer at 80% AP, as NBG's Short-term IDR is below 'F2'. RATING SENSITIVITIES The 'B+' rating of NBG's Programme II covered bonds would be vulnerable to downgrade if any of the following occurs: (i) the IDR of the issuer is downgraded by one or more notches, (ii) the number of notches represented by the IDR uplift and the D-Cap is reduced to zero. The Fitch breakeven AP for the covered bond rating will be affected, amongst others, 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 bond rating cannot be assumed to remain stable over time. In the report Breaking Down Breakeven Overcollateralisation, dated 8 July 2014, Fitch details its approach for determining the breakeven OC components. Contact: Primary Analyst Diana Ilaria Leone, CFA Director +39 02 87 90 87 219 Fitch Italia S.P.A. Via Morigi, 6 Ingresso Via Privata Maria Teresa, 8 Milan Secondary Analyst Roberto Del Ragno Analyst +39 02 87 90 87 206 Committee Chairperson Federica Fabrizi Senior Director +39 02 87 90 87 232 Media Relations: Christian Giesen, Frankfurt am Main, Tel: +49 69 768076 232, Email: Additional information is available on Applicable criteria, 'Covered Bonds Rating Criteria', dated 8 August 2014, 'Covered Bonds Rating Criteria - Mortgage Liquidity & Refinance Stress Addendum', dated 4 February 2014, 'EMEA RMBS Master Rating Criteria', dated 28 May 2014, 'EMEA Residential Mortgage Loss Criteria', dated 28 May 2014, 'EMEA Criteria Addendum - Greece', dated 5 June 2014, 'Counterparty Criteria for Structured Finance and Covered Bonds', dated 14 May 2014, 'Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum', dated 14 May 2014, 'Criteria for Sovereign Risk in Developed Markets for Structured Finance and Covered Bonds', dated 11 April 2014, 'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions' dated 28 May 2014, 'Criteria for Interest Rate Stresses in Structured Finance and Covered Bonds' dated 23 January 2014, are available at Applicable Criteria and Related Research: Covered Bonds Rating Criteria here Covered Bonds Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum here EMEA RMBS Master Rating Criteria here EMEA Residential Mortgage Loss Criteria here Criteria Addendum: Greece - Residential Mortgage Loss and Cash Flow Assumptions here Counterparty Criteria for Structured Finance and Covered Bonds here Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum here Criteria for Sovereign Risk in Developed Markets for Structured Finance and Covered Bonds here Criteria for Rating Caps and Limitations in Global Structured Finance Transactions here Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds 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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