Fitch Places Four Greek Covered Bonds Programmes on RWP(Rating Watch Positive)

FITCH PLACES FOUR GREEK COVERED BONDS PROGRAMMES ON RWP (Rating Watch Positive)

Fitch Ratings-Milan/London-22 August 2018: Fitch Ratings has placed the ‘BB-‘ ratings of the Greek mortgage covered bonds programmes of Alpha Bank AE (RD/RD/ccc+), National Bank of Greece S.A. (NBG, RD/RD/ccc+) under its Programme I (NBG I) and Programme II (NBG II) and Piraeus Bank S.A. (RD/RD/ccc) on Rating Watch Positive (RWP).

KEY RATING DRIVERS

The rating actions follow the upgrade of Greece’s Sovereign Long-Term Issuer Default Rating (IDR) to ‘BB-‘ from ‘B’ and Country Ceiling to ‘BBB-‘ from ‘BB-‘ (see “Fitch Upgrades Greece to ‘BB-‘ from ‘B’; Outlook Stable” dated 10 August 2018 at www.fitchratings.com). Fitch will resolve the RWP upon the publication of new assumptions for Greek residential mortgages up to the ‘BBB-‘ rating scenario, which is the new Country Ceiling and the maximum achievable for Greek covered bonds.

Each covered bond programme could be upgraded up to ‘BBB-‘ if the 25% contractual OC is enough to support timely payments above the covered bonds rating floors, given by each issuer’s Viability Rating (VR) as adjusted by the IDR uplift.

This outcome would imply that Fitch will start factoring a number of notches represented by each programmes’ payment continuity uplift (PCU), as the programmes benefit from dedicated liquidity arrangements designed to mitigate cash flow stresses upon issuer default.

Alpha’s and NBG’s covered bonds could be upgraded to ‘BB’ if the 25% contractual OC is sufficient to compensate for the cover pool stressed credit losses under the new rating. At present, the estimated credit losses under a ‘BB-‘ stress scenario are 8.2% (Alpha), 20.3% (NBG I) and 6.5% (NBG II).

Currently, the unchanged ‘BB-‘ breakeven OC for the programmes are derived from the cover pools’ stressed credit losses: 8% (Alpha), 20.5% (NBG I), 6.5% (NBG II) and 15.5% (Piraeus, from a 15.6% credit loss in a ‘BB-‘ stress scenario).

The unchanged IDR uplift of two notches above the corresponding VR reflects Greek covered bonds’ exemption from bail-in and the low risk of undercollateralisation in a bank resolution scenario. As the banks’ Long-Term IDRs remain at ‘Restricted Default’ (RD), Fitch uses the corresponding VR as the starting point for its covered bond rating analysis.

The PCU is currently not a driver for the covered bonds’ ratings, as the ‘BB-‘ rating is achievable via the assigned IDR uplift and recovery uplift. The PCU is unchanged at six notches for the soft bullet programmes of Alpha and NBG I and eight notches for the conditional pass-through covered bonds of NBG II and Piraeus. The assessment also considers the protection for interest payments of at least three months.

All else being equal, an upgrade up to ‘BBB-‘ could be possible if the 25% contractual OC is enough to support timely payments above the rating floor of each programme, which are ‘B’ for Alpha and NBG, and ‘B-‘ for Piraeus. For Alpha and NBG, an upgrade to ‘BB’ is possible if the contractual OC offsets the corresponding credit losses in a ‘BB’ rating scenario.

The Fitch breakeven OC for the covered bond ratings will be affected, among others, 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 the breakeven OC to maintain the covered bond rating cannot be assumed to remain stable over time.