OREANDA-NEWS. Fitch Ratings has assigned ING Bank N.V.'s (ING; A+/Negative/F1+) Series 1 EUR2bn bond a 'AAA' rating with a Stable Outlook. The fixed rate bond is the first in benchmark size to be issued under the bank's soft bullet covered bond programme and is due in April 2025 with an extended due payment date one year later.

KEY RATING DRIVERS
The rating is based on ING's Long-term Issuer Default Rating (IDR) of 'A+', a newly assigned IDR uplift of 2, an unchanged Discontinuity Cap (D-Cap) of 4 (moderate risk), and the level of protection provided via the programme's asset cover test, which uses an asset percentage (AP) of 77.7%. This is equal to the breakeven AP for the 'AAA' rating. Because the covered bond rating can 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.

Since the programme has been registered with the Dutch central bank (DNB) Fitch expects the covered bonds to be exempt from bail-in and gives benefit to ING's status as domestic systemically important bank and the bank's level of senior unsecured debt being above 5% of total indebtedness, leading to an IDR uplift of 2. Due to DNB's regulatory oversight of the programme, Fitch also lowered its risk assessment of the systemic alternative management component of the programme's D-Cap to low from moderate. All other D-Cap components and the overall D-Cap remain unchanged.

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%, which mainly incorporates the effect of the programme's amortisation test. This is particularly severe under Fitch stressed house price decline assumptions, as it gives no credit to the share of loans that are above 80% of the property value. The asset disposal loss component also reflects large maturity mismatches between the assets and the liabilities with a weighted average life (WAL) of 20.8 years (assuming no prepayments) and 10 years, respectively.

The low contribution of the cover pool's credit loss to the breakeven OC for the rating (5.6% in a 'AAA' scenario) reflects the sound quality of the mortgage loans, none of which are in arrears and a small share of which is with LTV above 100%, relative to peers. The cash flow valuation component leads to a lower 'AAA' breakeven OC by 4.6% due to significant 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.

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