The following statement was released by the rating agency:
Fitch Ratings has taken rating actions on four Greek covered bonds programmes issued by Alpha Bank AE (Alpha, RD/RD/ccc), National Bank of Greece S.A. (NBG, RD/RD/ccc) and Piraeus Bank S.A. (Piraeus, RD/RD/ccc) as follows:
– Alpha’s mortgage covered bonds upgraded to ‘B-‘ from ‘CCC+’; Stable Outlook assigned
– NBG’s mortgage covered bonds Programme I (NBG I) affirmed at ‘B-‘; Outlook Stable
– NBG’s mortgage covered bonds Programme II (NBG II) affirmed at ‘B-‘; Outlook Stable
– Piraeus’s mortgage covered bonds affirmed at ‘B-‘; Outlook Stable
The rating actions follow the upgrade of the Viability Ratings (VR) of Alpha, NBG and Piraeus to ‘ccc’ from ‘f’ on 19 June 2017 (see Fitch Affirms Greek Banks’ IDRs at RD; Upgrades VRs available at www.fitchratings.com) and the full periodic review of the programmes.
KEY RATING DRIVERS
Country Ceiling and VRs
The ratings of the covered bonds issued under the programmes are capped by Greece’s Country Ceiling of ‘B-‘. At the same time, the ‘B-‘ represents the rating floor for the programmes resulting from the VRs, as adjusted by the Issuer Default Rating (IDR) uplifts, and it is achievable irrespective of the levels of over-collateralisation (OC). Following the upgrade of the banks’ VRs to ‘ccc’ from ‘f’, the starting point for the analysis is the ‘ccc’ VR in accordance with Fitch’s Covered Bonds Rating Criteria.
IDR Uplift
Greek covered bonds are eligible for a maximum IDR uplift of two notches. The unchanged IDR uplift of two notches reflects that the issuers’ Long-Term IDRs are not support-driven (neither institutional nor by the sovereign) as well as a low risk of under-collateralisation at the point of resolution. This is based on Fitch’s assessment on the Greek legal framework, the presence of an asset monitor, asset eligibility criteria and minimum legal and contractual levels of OC, as applicable.
Payment Continuity Uplift (PCU)
The PCU is unchanged for all the programmes: six notches for NBG I and eight notches for NGB II, Alpha’s and Piraeus’s programmes due to the structural mechanisms that are in place to protect against cash flow mismatches between assets and liabilities.
While NBG I has a soft bullet amortisation profile of the liabilities with a 12-months principal maturity extension, NGB II, Alpha and Piraeus covered bonds envisage a conditional pass-through feature that implies the covered bonds can amortise in line with the cover assets upon the extension of their principal maturity date. Moreover, each programme includes a liquidity reserve that covers at least three-month interest due on the covered bonds and senior expenses.
Recovery Uplift
The covered bonds are eligible for a recovery uplift as they are secured by standard Greek residential mortgage loans and therefore capable of generating at least good recovery prospects. NBG I, NBG II and Piraeus’s programme are assigned a three-notch recovery uplift as the 25% OC Fitch relies on compensates for credit losses modelled in a stress scenario corresponding to the covered bonds’ rating (7%, 14% and 14.3%, respectively). Alpha programme is assigned a one-notch recovery uplift as its relied-upon OC of 5.26% does not offset the 8.4% credit loss in the ‘B-‘ rating scenario.
The PCU and recovery uplift assigned to each covered bond programme are not a driver of the covered bonds ratings, as they are constrained by the ‘B-‘ sovereign Country Ceiling.
ALPHA
Alpha’s covered bonds are rated ‘B-‘, two notches above the bank’s VR of ‘ccc’. This is based on an unchanged IDR uplift of two notches, an unchanged PCU of eight notches and a recovery uplift of one notch. The maximum legal asset percentage (AP) of 95% (5.26% equivalent OC) which Fitch relies upon in its analysis is in line with the ‘B-‘ breakeven AP. The agency has assigned a Stable Outlook to Alpha’s covered bonds, reflecting a stable cover pool composition.
NBG
NBG I and NBG II covered bonds are rated ‘B-‘, two notches above the bank’s VR of ‘ccc’, based on an unchanged IDR uplift of two notches, an unchanged PCU of six and eight notches, respectively, and a recovery uplift of three notches. The 80% contractual AP of both programmes (25% equivalent OC) which Fitch relies upon in its analysis provides more protection than the 95% ‘B-‘ breakeven AP. The Stable Outlook on the covered bonds reflects a stable cover pool composition and the cushion provided by the committed OC against the 95% ‘B-‘ breakeven AP.
PIRAEUS
Piraeus’ covered bonds are rated ‘B-‘, two notches above the bank’s VR of ‘ccc’. This is based on an unchanged IDR uplift of two notches, an unchanged PCU of eight notches and a recovery uplift of three notches. The contractual AP of 80% which Fitch relies upon in its analysis provides more protection than the 95% ‘B-‘ breakeven AP. The Stable Outlook on the covered bonds reflects a stable cover pool composition and the cushion provided by the committed OC against the 95% ‘B-‘ breakeven AP.
RATING SENSITIVITIES
Changes in Greece’s Country Ceiling could affect the rating of all Greek covered bonds programmes. In particular and all else being equal, a higher sovereign Country Ceiling would trigger an upgrade by one notch for all programmes, factoring in the good recovery prospects, irrespective of the level of Fitch’s relied-upon over-collateralisation.
If the Country Ceiling is upgraded by two notches or more, the covered bond ratings could be upgraded correspondingly as long as the relied-upon OC of each programme is enough to compensate for the stresses commensurated with the Country Ceiling level.
Alpha Bank AE’s covered bonds ratings are vulnerable to a one-notch downgrade if the bank’s VR is downgraded to ‘cc’ or below, all else being equal.