OREANDA-NEWS. Fitch Ratings has affirmed the rating of the Greek covered bonds issued by Alpha Bank AE (Alpha, RD/RD; Viability Rating (VR): f), National Bank of Greece S. A. (NBG, RD/RD; VR: f) and Piraeus Bank S. A. (Piraeus, RD/RD; VR: f), as follows:

Alpha's covered bonds affirmed at 'CCC+'

NBG's Programme I affirmed at 'B-'; Stable Outlook

NBG's Programme II affirmed at 'CCC+'

Piraeus's covered bonds affirmed at 'B-'; Stable Outlook

The affirmations follow the annual review of the programmes.

KEY RATING DRIVERS

Fitch rates the Greek covered bonds on the basis of their recovery prospects assuming a default of the issuers. The Greek covered bonds issuers' Issuer Default Rating (IDR) and VR are still 'RD' and 'f', reflecting an uncured payment default on obligations other than the covered bonds, and recourse against the cover pool has not been activated, a circumstance not explicitly envisaged in Fitch covered bonds rating criteria.

This represents a variation from Fitch's "Covered Bonds Rating Criteria" dated 11 March 2016. As a result of this variation Fitch does not disclose the breakeven overcollateralisation (OC) for the programmes' ratings. The rating impact of applying this criteria variation is undetermined.

Fitch tested if the committed, contractual or legal minimum OC plus other forms of protection available to investors (excess spread (calculated as the difference between the weighted average (WA) spread/coupon on the assets and the cost of the covered bonds multiplied by the difference of the WA lives) or the negative carry factor deduction in the mandatory tests) was sufficient to cover for credit risk and open interest rate positions. Fitch did not factor in maturity mismatches as in a recovery scenario all the bonds become immediately due and payable.

In its analysis, Fitch has also taken into account the balance of the programme accounts which have funds sufficient to cover the interest payments on the bonds for at least the following three months.

The 63.14% OC that Piraeus commits to (disclosed in the April 2016 quarterly investor report) and the 25% contractual OC for NBG Programme I are sufficient to achieve outstanding recovery prospects on the covered bonds given a default of the issuer (91%-100%). These are commensurate with the 'B' rating category, according to Fitch's rating definitions. The rating of these programmes is constrained by the 'B-' Country Ceiling for Greece. The Stable Outlook assigned to both programmes is driven by the stable cover assets composition.

The 'CCC+' rating of the covered bonds issued by Alpha and NBG under Programme II is driven by superior recovery prospects on the covered bonds given default of the issuer (71%-90%). These are achieved with the OC that Fitch relies on (5.3% minimum legal and 25% contractual OC, respectively).

Credit risk is the main rating driver for the Greek programmes. The composition of the cover pools of Alpha, NBG Programme I and Piraeus has remained broadly stable since the last review and is reflected in the 'B' portfolio loss rate (PLR) of 7.9%, 5.8% and 8.0%, respectively. NBG Programme II's 'B' PLR reduced to 9.2% (from 13.7%) after the EUR3bn buyback in May 2016, when the bank decided to take out the Swiss franc loans and most of the arrears, reducing them to 0.2% from 28.7% in December 2014. NBG also redeemed and cancelled EUR2.25bn outstanding bonds.

Interest rate mismatches absorb 6.8% (Alpha), 13.0% (NBG Programme II) and 2.6% (Piraeus) of the OC available to investors. In NBG Programme I an interest rate swap is in place with Deutsche Bank AG London branch to mitigate interest rate risk.

Fitch's Discontinuity Cap and IDR uplift analysis, which generally determines the maximum rating notch uplift from the IDR of the issuing entities to the covered bond rating on a probability of default basis, remain unpublished. This is in accordance with its covered bonds criteria, which also specify that for programmes of issuers with an IDR of 'RD' and a VR of 'f', the agency will continue to factor in the protection against discontinuity risk.

RATING SENSITIVITIES

Changes in the sovereign rating and/or in the country ceiling may affect the rating of the covered bond programmes issued by Alpha Bank AE, National Bank of Greece S. A. and Piraeus Bank S. A.

The ratings of the covered bond programmes are also sensitive to changes to the Greek banks' Issuer Default Ratings/Viability Ratings and to the overcollateralisation that the issuers commit to.