OREANDA-NEWS. Fitch Ratings has affirmed ING Belgium's (A+/Negative) EUR1.25bn mortgage pandbrieven at 'AAA'. The Outlook is Stable.

KEY RATING DRIVERS
Fitch's breakeven overcollateralisation (OC) for the 'AAA' rating is 43.0% and is mainly driven by maturity mismatches between the assets (9.8 years weighted average (WA) maturity) and the liabilities (five years WA maturity). Under Fitch's cash flow analysis for the programme, the WA life of the assets remains much higher than that of the liabilities under the driving scenario.

The rating is also based on ING Belgium's Long-term Issuer Default Rating (IDR) of 'A+', an unchanged IDR uplift of 1, an unchanged Discontinuity Cap (D-Cap) of 4 (moderate risk) and the 93.9% OC that Fitch takes into account in its analysis, which provides more protection than the 43.0% 'AAA' breakeven OC. The Stable Outlook on the pandbrieven rating reflects the cushion for the pandbrieven rating before it would be affected by a downgrade of ING Belgium's IDR, as well as Fitch's stable outlook for the underlying Belgian residential loan assets.

The 'AAA' breakeven OC of 43.0% is driven by the cover pool's credit loss of 10.1% in a 'AAA' scenario. The cash flow valuation component of 29.0% reflects the unhedged fixed assets and liabilities positions of the programme, as well as the gap between the stressed WA life of the assets versus the liabilities. The asset disposal loss is 9.6%, reflecting the continued large maturity mismatches between the assets and the liabilities, and despite the reduction in Fitch's refinancing spread assumptions for a 'AA' rating scenario. The breakeven OC considers whether timely payments are met in a 'AA' scenario and tests for recoveries given default of at least 91% in a 'AAA' scenario.

The unchanged IDR uplift of 1 reflects the covered bonds exemption from bail-in and that the issuer is systemically important in its domestic market, so that Fitch considers that resolution by other means than liquidation is likely.

RATING SENSITIVITIES
The 'AAA' rating would be vulnerable to a downgrade if any of the following occurs: (i) ING Belgium's IDR is downgraded by four notches to 'BBB' or lower; (ii) the number of notches represented by the D-Cap and the IDR uplift is reduced to one or fewer; (iii) the OC that Fitch considers in its analysis decreases below our 'AAA' breakeven level of 43.0%.

Fitch's breakeven OC for the pandbrieven rating will be affected, amongst others, by the profile of the cover assets relative to outstanding pandbrieven, which can change over time, even in the absence of new issuance. Therefore the breakeven OC to maintain the pandbrieven rating cannot be assumed to remain stable over time.

More details on the cover pool and Fitch's analysis will be available in a full rating report, which will shortly be available at www.fitchratings.com.

In the report 'Breaking Down Breakeven Overcollateralisation', dated 8 July 2014, Fitch details its approach for determining the breakeven OC components.