OREANDA-NEWS. Fitch Ratings has affirmed ING Bank N.V.'s (ING, A/Stable/F1) EUR27.3bn equivalent mortgage covered bonds at 'AAA'. The Outlook is Stable.

KEY RATING DRIVERS
The rating reflects ING's Long-term Issuer Default Rating (IDR) of 'A', an unchanged IDR uplift of 2 notches, an unchanged D-Cap of 4 notches (moderate risk) and the 77.3% asset percentage (AP) that Fitch takes into account in its analysis, which provides more protection than the 79.5% breakeven AP for the 'AAA' rating. The latter supports a 'AA' tested rating on a probability of default basis and a two-notch recovery uplift to a 'AAA' rating. The Stable Outlook reflects a three-notch cushion against a downgrade of ING's IDR.

The unchanged D-Cap of 4 notches reflects moderate payment interruption risk. The weakest links remain the asset segregation, liquidity gap and systemic risk 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 six-month interest reserve fund, the pre-maturity test for the hard bullet bonds (32% of all series) and the 12-month extendible feature for the series that were converted into soft bullet in September 2015. The two-notch IDR uplift reflects ING's status as a systematically important bank for its domestic market and senior unsecured debt accounting for more than 5% of its adjusted balance sheet.

The 79.5% 'AAA' breakeven AP has increased from 78.5% since December 2014, mainly due to rising house prices in the Netherlands and a smaller credit loss of the cover pool having a positive impact on the amortisation test.

The 'AAA' breakeven AP is equivalent to a breakeven OC of 25.8%, which is primarily driven by an asset disposal loss component of 23.5% due to large maturity mismatches between the assets and the liabilities, with a weighted average life (WAL) of 18.2 years (assuming no prepayments) and six years, respectively.

The 79.5% 'AAA' breakeven AP is also partly driven by a 6.0% 'AAA' credit loss component, which represents the impact on the breakeven AP from a 13.9% weighted average default rate (WAFF) and a 59.7% weighted average recovery rate (WARR) for the mortgage cover assets in a 'AAA' scenario. The 'AAA' WAFF has decreased from 15.2% a year ago, mainly due to the removal of most loans in arrears for more than 90 days from the cover pool. The available excess spread has led to a reduction of the 'AAA' breakeven OC by 1.3%. 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 be vulnerable to downgrade if any of the following occurs: (i) ING Bank N.V.'s IDR is downgraded by four or more notches to 'BBB-' or below; or (ii) the number of notches represented by the IDR uplift and the D-Cap is reduced to two or lower; or (iii) the AP that Fitch considers in its analysis increases above Fitch's 'AAA' breakeven level of 79.5%.

The Fitch breakeven AP for the covered bond rating will be affected, among 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.