Fitch Ratings has assigned National Australia Bank Limited's (NAB, A+/Stable/F1) Series 49 EUR1.25 billion fixed-rate mortgage covered bond a rating of 'AAA'.

The Outlook is Stable.

This issuance brings NAB's total outstanding covered bonds to AUD29.4 billion equivalent. The bond is due in February 2031 and benefits from a 12-month extendable maturity.

KEY RATING DRIVERS

The covered bond rating 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 bond is 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 of 95.0% used in the asset coverage test, which provides more protection than Fitch's 'AAA' breakeven AP of 96.5%.

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

RATING SENSITIVITIES

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

The rating of the bond is at the highest level on Fitch's rating scale and so cannot be upgraded.

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

NAB's covered bond rating would be vulnerable to a downgrade if the bank's Long-Term IDR were 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 96.5%. There is no rating impact on the bonds if the relied-upon AP in the programme rises up to the maximum 95.0% contractual AP stipulated in the programme documents, as it supports a greater level of OC than Fitch's 'AAA' breakeven AP.

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 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.

Date of Relevant Committee

09 May 2023

SOURCES OF INFORMATION

The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated bond 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 its Long-Term IDR.

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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