OREANDA-NEWS. This announcement corrects the version published on 31 March 2015, which incorrectly stated the size of the bond.

Fitch Ratings has assigned ING Bank N.V.'s (ING; A+/Negative/F1+) EUR0.5m bond a 'AAA' rating with a Stable Outlook. The fixed rate bond is the first to be issued under the soft bullet covered bond programme and is due in May 2015 with an extended due payment date one year later. This first retained issuance has been made for the purpose of registering the programme with the Dutch Central Bank under the Dutch covered bond legislation.

KEY RATING DRIVERS
The rating is based on ING's Long-term Issuer Default Rating (IDR) of 'A+', a Discontinuity Cap (D-Cap) of 4 (moderate risk) and the level of overcollateralisation (OC) that Fitch takes into account in its analysis. The breakeven asset percentage (AP) for the 'AAA' rating is 77.7%. Fitch takes into account the 77.7% AP that will be used in the programme's asset coverage test. Because the covered bond rating could sustain a one-notch downgrade of ING's IDR to its Viability Rating of 'a', the Outlook on the covered bond rating is Stable despite the Negative Outlook on ING's IDR.

The D-Cap of 4 reflects moderate payment interruption risk. The weakest links are the asset segregation, liquidity gap and systemic risk, systemic alternative management and privileged derivatives components. The moderate risk assessment for the liquidity gap & systemic risk component takes into account mitigants against liquidity gaps in the form of a three-month interest reserve fund and a 12-month extendable maturity on the covered bonds. The programme is expected to be registered with the Dutch Central Bank. Until then, no IDR uplift is applicable.

The 77.7% 'AAA' breakeven AP is driven by the amortisation test (AT), which following the application of Fitch's stressed house price decline, is particularly punitive due to the test giving no credit to the loan parts above 80% of the property value. In the calculation of Fitch's breakeven OC components, the additional stress from the AT compared with the cash flow model result has been added to the asset disposal loss component.

The 77.7% 'AAA' breakeven AP corresponds to a breakeven OC of 28.7% and is driven by the asset disposal loss component of 30.0%, mainly due to large maturity mismatches between the assets and the liabilities with a weighted average life (WAL) of 20.8 years (assuming no prepayments) and 10.0 years, respectively, followed by the cover pool's credit loss of 5.6% in a 'AAA' scenario. The cash flow valuation component leads to a lower 'AAA' breakeven OC by 4.6% due to excess spread and the longer WAL of the assets versus the liabilities. The breakeven AP 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 5.6% 'AAA' credit loss represents the impact on the breakeven OC from the 13.5% weighted average default rate and the 60.6% weighted average recovery rate for the mortgage cover assets.

As of end-December 2014, the cover pool consisted of 21,807 residential mortgage loan parts totalling EUR2.5bn, secured on residential properties in the Netherlands. The weighted average (WA) indexed current loan-to-value is 89.2% and the WA seasoning is 75 months. In total, 73% of the pool is interest-only, the remaining 27% are either annuity, linear, bank savings, life, investment or credit mortgage products. All assets in the pool are secured by owner-occupied properties and none of the loans in the cover pool are in arrears. The cover assets have a broad geographic spread across the Netherlands with the main concentrations in Zuid-Holland (21.2%), Noord-Holland (16.2%) and Noord-Brabant (14.7%).

RATING SENSITIVITIES
The 'AAA' rating would also be vulnerable to downgrade if any of the following occurs: (i) ING's IDR is downgraded by three or more notches to 'BBB+' or below; or (ii) the D-Cap is reduced to one or lower; or (iii) the AP that Fitch considers in its analysis increases above our 'AAA' breakeven level of 77.7%.

Fitch's breakeven AP for the covered bond rating will be affected, amongst 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 AP to maintain the covered bond rating cannot be assumed to remain stable over time.