Fitch Ratings has affirmed
The Outlook is Stable.
This follows a periodic review of the covered bond programme.
KEY RATING DRIVERS
The covered bonds are rated four notches above the bank's IDR, at the highest end of the rating scale. This is out of a maximum achievable uplift of seven notches, consisting of a resolution uplift of zero notches, a payment continuity uplift (PCU) of six notches and a recovery uplift of one notch. Fitch's analysis relies on the programme's committed AP of 93.4% used in the programme's asset coverage test, which provides more protection than Fitch's revised breakeven AP of 96.0%.
The Stable Outlook on the rating reflects the three-notch buffer against a downgrade of the issuer's IDR.
The resolution uplift remains unchanged at zero notches. There is no specific advanced resolution regime in
The PCU remains unchanged at six notches and reflects the strength of liquidity protection in the form of a 12-month extension period on the soft-bullet bonds. It also reflects the three-month interest protection in the form of a reserve that will be funded upon the loss of 'A-' and 'F1' ratings.
The recovery uplift on the rating is capped at one notch, as the programme is exposed to foreign-exchange risk from recoveries given default of the covered bonds. This is because the assets are denominated in Australian dollars while about 90% of the covered bonds outstanding are denominated in other currencies. Swaps are in place on the liabilities, but we expect these swaps to terminate following a default of the covered bonds, exposing recoveries to currency risk.
The ALM loss has increased to 0.8%, from 0.4%, driven by a slightly lower asset margin modelled on the variable rate mortgages. The credit loss component reflects the credit quality of the underlying cover pool and contributes 3.3% to the breakeven OC for the rating. This component has remained stable at 3.3% since the previous analysis.
Cover Pool Summary
The cover pool consisted of 142,162 loans secured by first-ranking mortgages on Australian residential properties, with a total outstanding balance of about AUD43.4 billion at
The key rating drivers listed in the applicable sector criteria, but not mentioned above, are not material to this rating action.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The rating on the covered bonds is '
Factors that could, individually or collectively, lead to negative rating action/downgrade:
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 overcollateralisation than Fitch's '
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 '
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