Fitch Affirms Slovenska Sporitelna's Mortgage Covered Bonds at 'A'; Outlook Stable

OREANDA-NEWS. Fitch Ratings has affirmed Slovenska Sporitelna's (SLSP: BBB+/Stable/F2) mortgage covered bonds (Hypotekarne zalozne listy) at 'A'. The Outlook is Stable.

KEY RATING DRIVERS

The mortgage covered bonds' rating is based on SLSP's Long-Term Issuer Default Rating (IDR) of 'BBB+', an IDR uplift of one notch, and the 22.6% nominal overcollateralisation (OC) that Fitch takes into account in its analysis, supporting recoveries in line with a one-notch recovery uplift.

The annual review continues to be based on a limited uplift approach by testing whether the 22.6% nominal OC taken into account provides at least 51% recoveries in a 'A' rating scenario when conservative default and recovery assumptions are applied. Fitch could not perform a full analysis as it is still in the process of forming assumptions for our credit analysis. We expect that performance data provided by the issuer will allow a full and robust analysis and may lead to the assignment of an additional notch of recovery uplift.

Fitch currently assigns an IDR uplift of one notch to SLSP's mortgage covered bonds, reflecting the favourable treatment of covered bonds and the importance of SLSP in its domestic market, supporting Fitch's view that resolution by methods other than liquidation would be likely.

The Stable Outlook on the mortgage covered bonds mirrors that on SLSP's Long-Term IDR of 'BBB+' and Slovakia's 'A+' Long-Term IDR.

RATING SENSITIVITIES

Given Fitch's application of the limited rating uplift approach, the rating of the covered bonds is directly linked to SLSP's rating. Changes to the bank's IDR would be reflected in the covered bonds rating. If the OC that Fitch considers in its analysis drops to the legal minimum requirement of 0% on a nominal basis, the 'A' rating of SLSP's mortgage covered bonds would not be affected.

The affirmation is based on Fitch's current criteria. In its Exposure Draft: Covered Bonds rating criteria, published on 29 June 2016, Fitch proposed to determine the IDR uplift with an emphasis on whether the risk of under-collateralisation at the point of an issuer resolution is sufficiently low. In the event that this proposal is converted into criteria, we would likely upgrade SLSP's covered bonds by one notch.