Fitch Ratings has assigned Westpac Banking Corporation's (WBC, A+/Stable/F1) Series 2021-C1 and 2021-C2 mortgage covered bonds, totalling AUD2.8 billion equivalent, ratings of 'AAA'.

The Outlook is Stable. This issuance brings WBC's total outstanding covered bonds to AUD25.9 billion. The fixed-rate bonds are due in September 2028 and September 2036, respectively, and benefit from a 12-month extendable maturity.

KEY RATING DRIVERS

The 'AAA' rating of 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 (OC) 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 (PCU) of six notches and a recovery uplift of one notch. For its analysis, Fitch relies on the programme's committed AP used in the programme's asset coverage test, which is equal to Fitch's breakeven AP of 90.5%.

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 90.5%. If the AP in the programme rose to the maximum 95.0% contractual AP stipulated in the programme documents, the rating on the covered bonds would fall to 'AA-', one notch above the IDR.

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

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