OREANDA-NEWS. Fitch Ratings has affirmed the 'B-' ratings on four Greek bank covered bond programmes and removed them from Rating Watch Negative (RWN). The covered bonds are issued by Alpha Bank AE (Alpha, CCC/C, Viability Rating (VR): ccc), National Bank of Greece S.A. (NBG, CCC/C; VR: ccc), which has Programme I and Programme II, and Piraeus Bank S.A. (Piraeus, CCC/C, VR: ccc). The Outlook on all four programmes is Negative.

The rating action follows the downgrade of the Greek banks' Issuer Default Ratings (IDR) to 'CCC' from 'B-'/RWN (see "Fitch Downgrades Greek Banks to 'CCC' on Sovereign Downgrade " dated 1 April 2015 at www.fitchratings.com).

KEY RATING DRIVERS
The ratings of Alpha's and NBG's Programme II covered bonds are constrained by the asset percentage (AP) that Fitch relies upon: the maximum legal 95% for Alpha and the 80% that the issuer commits to in its latest investor report (February 2015) for NBG. This level of protection allows only a one-notch uplift above the 'CCC+' tested rating on a probability of default (PD) basis, given by the IDR as adjusted by the IDR uplift of 1, and provides no more than 70% recoveries given default.

Covered bond ratings are capped at the lower of the structured finance rating cap (SF rating cap) and the Country Ceiling, which are both 'B-' for Greece. The 'B-' rating of the covered bonds issued by NBG under Programme I and Piraeus are limited by the SF rating cap. Although the AP that the issuers commit to (70% for NBG Programme I (February 2015) and 61.3% for Piraeus (January 2015)) would allow the covered bonds to achieve two notches above the 'CCC+' tested rating on a PD basis, the ratings are constrained by the SF cap at 'B-'.

The constraints imposed by the AP commitment and SF rating cap and the Greek Country Ceiling currently do not allow NBG Programme II and Piraeus to gain any benefit from the conditional pass-through liability structure.

The 'B-' breakeven AP for all programmes is 95%, in line with the maximum AP allowed by the Greek covered bond law. The Negative Outlook on the ratings of Alpha's, NBG's and Piraeus's outstanding covered bonds reflects the deteriorating performance of the assets.

RATING SENSITIVITIES
The 'B-' rating of the Greek covered bonds are vulnerable to a downgrade if (i) the number of notches represented by the IDR uplift and the D-Cap falls to zero; or (ii) the Greek Country Ceiling is revised lower by one notch or more.

The rating of the covered bonds issued by Alpha and NBG are also vulnerable to s downgrade if the IDR of the issuers is downgraded by one or more notches, while Piraeus's would be downgraded if the IDR of the bank is downgraded below 'CC'.

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.