Fitch Ratings has assigned Westpac Banking Corporation's (WBC, A+/Stable/F1) GBP750 million Series 2023-C1 floating-rate mortgage covered bond a rating of 'AAA'.

The Outlook is Stable.

This issuance brings WBC's total outstanding covered bonds to AUD32.9 billion. The floating-rate bond is due in January 2028 and benefits from a 12-month extendable maturity.

KEY RATING DRIVERS

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

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 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 breakeven AP of 96.5%.

The Stable Outlook on the rating reflects the three-notch buffer against a downgrade of the issuer's IDR.

RATING SENSITIVITIES

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

The rating on the covered bonds 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:

WBC's 'AAA' covered bond rating would be vulnerable to a downgrade if the bank's 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 from the relied-upon AP in the programme equaling the maximum 95.0% contractual AP stipulated in the programme documents, as it supports a greater level of overcollateralisation 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.

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

Date of Relevant Committee

03 June 2022

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 its Long-Term Foreign-Currency 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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