OREANDA-NEWS. Fitch Ratings has upgraded two and affirmed 10 tranches of four prime Greek RMBS transactions originated by Piraeus Bank S. A. (Piraeus, RD/RD, VR: f) and Consignment Deposit & Loans Fund (CDLF).

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KEY RATING DRIVERS

Stabilising Asset Performance

Over the last 12 months, asset performance has stabilised as the proportion of late stage arrears dropped from the peak of between 1.4% (Kion) and 17.6% (Estia II), to between 0.6% (Kion) and 9.3% (Estia II) of the current pool. The improved asset performance reflects successful negotiations with international creditors leading to a less vulnerable banking system, as well as a more stable political environment.

Fitch notes that delinquency ratios peaked in August 2015 following capital controls and inconclusive negotiations with creditors. In an environment with an extended period of uncertainty borrowers decided to withhold mortgage payments. As systemic risk remains the main driver of performance, especially for the Estia and Kion transactions, Fitch expects the asset performance to improve gradually as the economic landscape stabilises.

Meanwhile, the performance of Grifonas has remained stable over the last 12 months. It remains broadly unaffected by external factors, as the portfolio comprises civil servants, whose monthly mortgage instalments are deducted from their salaries. The main factors behind the arrears in this portfolio are differences between salaries and pension, following retirement of the borrowers and death of the underlying borrowers.

Adequate Credit Support

Credit enhancement has increased across all the transactions over the past 12 months as portfolios amortised at an average annual rate between 5% (Estia II) and 19% (Kion). In addition, the cash reserves of Estia I and II have been replenished to their target levels. The latter has led to an upgrade of the class B and C notes of Estia I to 'B-sf' and 'CCCsf', respectively. For the remaining tranches, Fitch found that the current credit enhancement is adequate to withstand their respective rating stresses.

Originator Intervention

Over the three months to April 2016, Piraeus Bank repurchased the majority of the outstanding defaults in Estia I, Estia II and Kion. Fitch understands that the reason for the repurchase was to allow the bank more flexibility in its recovery actions, which are currently not permitted under the transactions' servicing agreements. This intervention led to an influx of excess spread, which allowed Estia II to clean the pipeline of un-provisioned defaults and restore the cash reserves of Estia I and Estia II to their respective targets.

We also understand that Piraeus Bank has repurchased some delinquent loans of transactions, particularly Estia I and Estia II, ahead of being recognised as defaulted under the transaction documentation. Fitch has therefore not given any credit to the past asset performance and set the performance adjustment factor to 1. Originator buybacks resulted in a limited number of loans defaulting over the last 12 months despite the weak economic environment.

Recovery Activity

Despite the repurchase of a significant number of defaulted loans from the portfolios, limited portions of defaulted assets remain in the Estia and Kion portfolios. Fitch did not give any credit to recovery income on these assets due to the on-going foreclosure moratorium, which has made any foreclosure activity sporadic as well as lengthy. For the same reasons, the agency has capped the recovery rate of future defaults to a maximum 100% of the defaulted balance.

In Fitch's view, the recovery activity is likely to remain limited and mainly reliant on payment plans rather than asset sales. However, easier possessions are likely to give the banks greater negotiating power and encourage borrowers to restructure their loans, deterring strategic defaulters from withholding payments.

Missing Data

Fitch notes that in some cases information on original property value and borrower income is missing in the data tapes. In its analysis the agency has assumed that missing property values are equal to the original loan balance. Fitch also assumed that all the borrowers are in the highest debt-to-income ratio bucket (class 5). The latter assumption is consistent with the weak economic environment prevailing over the last years.

These conservative assumptions had no effect on the ratings.

RATING SENSITIVITIES

Further changes to the Greek sovereign Issuer Default Rating, Country Ceiling or structured finance rating cap may result in corresponding changes on the tranches rated at the cap.

A change in legislation that entails higher volumes of foreclosures would cause Fitch to revise its assumptions, in turn affecting the ratings.

Asset deterioration beyond Fitch's expectations could lead to negative rating action.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY

Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transactions' initial closing. The subsequent performance of the transactions over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION

The information below was used in the analysis.

- Loan-by-loan data provided by Piraeus Bank and CDLF as at 31 March 2016 (Estia I and Kion), 28/02/2016 (Grifonas) and 30 April 2016 (Estia II)

- Transaction reporting provided by by Piraeus Bank and CDLF as at 31 March 2016 (Estia I and Kion), 28 February 2016 (Grifonas) and 30 April 2016 (Estia II)