Fitch Ratings has assigned National Australia Bank Limited's (NAB, A+/Stable/F1) Series 43 EUR1.5 billion floating-rate mortgage covered bonds a rating of 'AAA'.

The Outlook is Stable.

This issuance brings NAB's total outstanding covered bonds to AUD24.5 billion equivalent. The bond is due in February 2026 and benefits from a 12-month extendable maturity.

KEY RATING DRIVERS

The 'AAA' rating of the mortgage covered bonds is based on NAB's Long-Term Issuer Default Rating (IDR) of 'A+', the various uplifts above the IDR granted to the programme and the overcollateralisation (OC) protection provided through the programme's asset percentage (AP).

The covered bonds are rated four notches above the bank's IDR. This is out of a maximum achievable uplift of seven notches, consisting of a resolution uplift of zero notches, a payment continuity uplift of six notches and a recovery uplift of one notch. Fitch's analysis relies on the programme's committed AP used in the asset coverage test, which is equal to the 'AAA' breakeven AP of 95.0%.

The Stable Outlook reflects a three-notch buffer against an IDR downgrade.

AAA' Breakeven AP

Fitch's revised 'AAA' breakeven AP of 97.5% corresponds to a 2.6% 'AAA' breakeven OC, which allows the covered bonds to attain a 'AA+' rating on a timely payment rating level and one-notch recovery uplift to 'AAA'.

The change in 'AAA' breakeven AP was driven by the change in the ALM loss component, reflecting the modelled asset and liability mismatches, inclusive of the modelled excess spread and the effect of the pro rata sales clause documented in the programme. The ALM loss has deteriorated to -0.5%, from -0.8% at the previous analysis, due to higher modelled maturity mismatches in the programme, resulting from a high concentration of redemptions over a 12-month period from December 2025 following the issuance of Series 43, which has over AUD7.1 billion in maturities between December 2025 and February 2026. This creates the need to sell more cover assets under our modelling and has a negative effect on the sales constraint in the programme, which only allows the pro rata proportion of assets to be sold for the liabilities being redeemed.

Fitch has also modelled a higher weighted-average (WA) floating-rate margin, reflecting a smaller increase in the bank bill swap rate since the last analysis, when compared with the increase in the WA variable mortgage loans' interest rates, improving overall modelled excess spread. This partly offsets the deterioration caused by the maturity concentration.

The credit loss component, which is now the driver of the breakeven AP, reflects the credit quality of the underlying cover pool. This component is maintained from the previous analysis, at 3.1%.

RATING SENSITIVITIES

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

The rating on the covered bond is 'AAA', which is the highest level on Fitch's rating scale. The rating cannot be upgraded.

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

The rating on NAB's covered bonds would be vulnerable to a downgrade if the bank's IDR were to be downgraded by four or more notches to 'BBB' or below; or if the relied-upon AP were to provide less protection than Fitch's 'AAA' breakeven AP of 97.5%.

Fitch's 'AAA' breakeven AP for the covered bond rating will be affected, among other things, by the profile of the cover assets relative to the outstanding covered bonds, which can change over time, even in the absence of new issuance. Therefore, it cannot be assumed that the 'AAA' breakeven AP, which maintains the covered bond rating, will 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

SOURCES OF INFORMATION

The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated bonds is public.

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 bond rating is driven by the credit risk of the issuing financial institution as measured by the 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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