Fitch Ratings has affirmed ABN AMRO Bank N.V.'s (A/Stable/F1), de Volksbank N.V.'s (A-/Stable/F1) and ING Bank N.V.'s (AA-/Stable/F1+) mortgage covered bonds at 'AAA'.

The Outlooks are Stable.

ING's covered bonds are issued under the bank's hard bullet and soft bullet covered bonds programme (ING HBSB) and soft bullet covered bonds programme (ING SB).

KEY RATING DRIVERS

The covered bonds' 'AAA' ratings are based on ABN AMRO's, de Volksbank's and ING's Long-Term Issuer Default Ratings (IDR), the various uplifts above their respective IDRs granted to the programmes and the overcollateralisation (OC) protection provided through the programmes' asset percentage (AP).

ABN AMRO's covered bonds are rated five notches above its IDR, de Volksbank's six notches above its IDR and ING's three notches above its IDR. In each case, 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.

For ABN AMRO, the breakeven AP for the 'AAA' covered bonds' rating has increased to 88.0% from 87.0%. This is equivalent to OC of 13.6%, corresponding to an unchanged credit loss component of 2.9% and an improved ALM (assets/liabilities mismatch) loss component of 10.7% from 11.8% previously. The improvement is due to the current interest rate environment, which results in a less negative impact on the net present value difference between asset and liabilities as well as the lower refinancing spreads applied under Fitch's updated Covered Bonds Ratings Criteria.

For this programme, Fitch relies on the AP of 82.4%, which is the highest observed over the last 12 months. This provides more protection than Fitch's 'AAA' breakeven AP of 88.0%.

For de Volksbank, the breakeven AP for the 'AAA' covered bonds' rating has increased to 91.0% from 88.5%. The break-even AP is equivalent to OC of 9.6%, corresponding to an unchanged credit loss component of 2.2% and an improved ALM loss component of 7.4% from 10.6% previously. Similar to the improvements for the ABN covered bond programme, the current interest rate environment and lower refinancing spreads applied under Fitch's updated Covered Bonds Ratings Criteria have a positive impact on the ALM loss. The reduced mismatch between the weighted average life of the assets and liabilities of the programme have also had a positive effect on the break-even AP.

For this programme, Fitch relies on the AP of 84.2%, which is the highest observed over the last 12 months. This provides more protection than Fitch's 'AAA' breakeven AP of 91.0%.

For ING HBSB and ING SB, only one notch of recovery uplift above the resolution reference point of 'AA+' is necessary to achieve a 'AAA' rating. Under Fitch's criteria, fully collateralised covered bonds programmes secured by standard assets are commensurate with one notch of recovery uplift. Consequently, the 'AAA' breakeven AP is unchanged at 100% for both programmes.

In its analysis, Fitch relies on the highest nominal AP level over the last 12 months of 86.8% for ING HBSB. For ING SB, Fitch relies on the maximum legal AP of 95.2% as there has not been any new issuance out of the programme since 2020.

The Stable Outlooks on ABN AMRO's, de Volksbank's and ING's covered bonds reflect the respective five-, four- and seven-notch buffer for the covered bonds' ratings against a downgrade of the banks' IDRs.

Uplifts

The two-notch resolution uplift for all programmes reflects that collateralised covered bonds in the Netherlands are exempt from bail-in, that Fitch deems the risk of under-collateralisation at the point of resolution to be sufficiently low, and that a resolution of ABN AMRO, de Volksbank and ING, should it happen, is not likely to result in the direct enforcement of the recourse against the cover pool.

For ABN AMRO and ING HBSB, the six-notch PCU reflects the principal liquidity protection provided by the 12-month pre-maturity reserve for the hard-bullet covered bonds. A dynamic reserve is funded upon a downgrade of the issuers' Short-Term IDRs below 'F1' for ABN AMRO and 'F1+' for ING HBSB and will cover at least three months of senior expenses, swap payments and interest payments. For de Volksbank and ING SB, the six-notch PCU reflects the liquidity protection in place for principal payments on the covered bonds from a 12-month maturity extension for the soft-bullet bonds, together with at least three months' protection for interest payments from a dynamic cash reserve.

The recovery uplift for each programme is two notches, given that under each programme, the timely payment rating level is in the investment-grade category and no material downside risk to recoveries has been identified.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

The covered bonds are rated at the highest level on Fitch's scale and cannot be upgraded

Factors that could, individually or collectively, lead to negative rating action/downgrade:

ABN AMRO's covered bonds' rating would be vulnerable to a downgrade if its IDR was downgraded by six or more notches to 'BB' or below; or if the relied upon AP provided less protection than Fitch's 'AAA' breakeven AP of 88.0%.

De Volksbank's covered bonds' rating would be vulnerable to a downgrade if its IDR was downgraded by five or more notches to 'BB' or below; or if the relied upon AP provided less protection than Fitch's 'AAA' breakeven AP of 91.0%.

ING's covered bonds' rating would be vulnerable to a downgrade if its IDR was downgraded by eight notches or more, to 'BB' or below. Fitch's 'AAA' breakeven AP would decrease in the event of a downgrade of the bank's IDR. If the IDR was downgraded by one notch to 'A+', the 'AAA' breakeven AP would correspond to the OC offsetting the cover pool's credit loss in a 'AAA' stress scenario.

Fitch's breakeven AP for the covered bonds' ratings 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' ratings cannot be assumed to remain stable over time.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

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' ratings are driven by the credit risk of the banks as measured by their respective Long-Term IDR.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

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