Fitch Upgrades Bankia's CH to 'A-'; Outlook Revised to Stable for Abanca's and BMN's 'BBB ' CH
These actions on the CH ratings follow Fitch's latest rating actions on the banks. See 'Fitch Affirms Bankia at 'BBB-'/Negative; Upgrades VR to 'bb+'', 'Fitch Revises Abanca's Outlook to Stable; Affirms at 'BB+'', and 'Fitch Affirms Banco Mare Nostrum at 'BB+'; Upgrades VR to 'bb'', all dated 1 April 2015.
KEY RATING DRIVERS
Bankia CH
The upgrade of Bankia's CH is driven by the issuer's Viability Rating (VR) upgrade to 'bb+' from 'bb-'. The IDR uplift of 2 notches assigned to the CH now exceeds the potential downgrade by one notch of the bank's Long-term Issuer Default Rating (IDR) of 'BBB-' to its current VR to reflect a lower sovereign support. The Outlook on Bankia's CH is Stable despite a Negative Outlook on the bank's IDR, because the CH rating could remain 'A-' even if the bank's IDR were downgraded to its VR.
Fitch has not applied stress scenarios testing for timely payments, because the IDR adjusted by the programme IDR uplift leads to a floor of 'BBB' for the CH rating on a probability of default basis regardless of the level of OC. An unchanged full discontinuity risk assessment (Discontinuity Cap of 0) applies to Bankia's CH rating analysis.
The CH upgrade by one notch is also supported by the 67.5% overcollateralisation (OC) that Fitch takes into account in its analysis, which provides more protection than the 64% 'A-' breakeven OC. This 67.5% relied upon level of OC provides for recoveries in excess of 91% in the event of CH defaulting, and consequently a two-notch recovery uplift is assigned.
The 64% 'A-' breakeven OC is mainly driven by the asset disposal loss component of 38.2% that is explained by the refinancing spreads of 4.6% per annum applied to estimate the cover pool liquidation value under a stress scenario. The breakeven OC is also influenced by the cash flow valuation component of 12.7%, driven by the large maturity mismatches between CHs and the cover pool; the weighted average remaining maturity term of the CHs is 6.8 yrs, while that of the cover pool is 20.7 yrs.
Moreover, the 'A-' breakeven OC is influenced by the estimated credit loss rate of the cover pool of 29%. Fitch credit analysis of the cover pool recognises both its composition, in terms of borrower and security profile, and also the trend of non-performing loans (NPLs). As of the last reporting cut-off date of 31 December 2014, the NPL ratio based on a doubtful classification of assets, stood at 13.1% from 13.9% in June 2014.
When determining the 67.5% relied upon level of OC, Fitch takes into account the lowest OC of the last 12 months (84.4%) and applies a 20% haircut to compensate for potential volatility.
Abanca CH
The Outlook revision on Abanca's CH rating mirrors the Outlook revision to Stable from Negative for the bank's IDR. Abanca's CH rating is based on the bank's IDR of 'BB+/Stable', an unchanged IDR uplift of one and a two notch uplift to account for outstanding stressed recoveries from the cover pool in the event of a CH default.
Fitch has not applied stress scenarios testing for timely payments, because the IDR adjusted by the programme IDR uplift leads to a floor of 'BBB-' for the CH rating on a probability of default basis regardless of the level of OC. Fitch's rating analysis remains unchanged in other aspects such as the full discontinuity risk assessment (Discontinuity Cap of 0), the relied upon level of OC of 89.1% and the break-even OC ratio for the assigned rating of 50.4%.
BMN CH
The Outlook revision to Stable on BMN's CH rating reflects that even if the bank's IDR of 'BB+/Negative' were to be downgraded to its current VR of 'bb' as a result of support revision, the CHs could still remain rated 'BBB+' based on an unchanged IDR uplift of one, and on a three notch uplift to account for outstanding stressed recoveries from the cover pool in the event of a CH default.
Fitch has not applied stress scenarios testing for timely payments, because the IDR adjusted by the programme IDR uplift leads to a floor of 'BB+' for the CH rating on a probability of default basis regardless of the level of OC. Fitch's rating analysis remains unchanged in other aspects such as the full discontinuity risk assessment (Discontinuity Cap of 0), the relied upon level of OC of 66.7% and the break-even OC ratio for the assigned rating of 42.1%.
RATING SENSITIVITIES
Bankia's CH 'A-' rating would be vulnerable to downgrade if the IDR is downgraded by two or more notches to 'BB' or below, or the number of notches represented by the IDR uplift and the D-Cap is reduced to zero. For Abanca and BMN, their 'BBB+' CH ratings would be vulnerable to downgrade if the IDR of each bank was downgraded by two or more notches to 'BB-' or below.
For all three programmes, their CH rating would be vulnerable to downgrade if the OC that Fitch considers in its analysis decreases below its breakeven OC for the assigned rating.
If the OC that Fitch considers in its analysis drops to the legal minimum of 25% the CH ratings would likely be downgraded by one notch, because this level of OC would not be sufficient to allow for 91% recoveries following an issuer default and therefore would limit the CH ratings to one or two notch above the IDR as adjusted by the IDR uplift.
The Fitch breakeven OC for the CH ratings 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 OC to maintain the covered bond ratings cannot be assumed to remain stable over time.
The rating actions are as follows:
Bankia:
CH upgraded to 'A-/Stable' from 'BBB+/Stable'
Abanca:
CH affirmed at 'BBB+', Outlook revised to Stable from Negative
BMN:
CH affirmed at 'BBB+', Outlook revised to Stable from Negative.
Комментарии