Fitch Affirms Pekao Bank Hipoteczny's Mortgage Covered Bonds at 'A'; Outlook Stable
KEY RATING DRIVERS
The rating is based on PBH's Long-term Issuer Default Rating (IDR) of 'A-', an unchanged IDR uplift of one notch and an unchanged Discontinuity Cap (D-Cap) of zero notches (full discontinuity). The IDR and the IDR uplift result in a rating floor of 'A' irrespective of the level of protection provided through overcollateralisation (OC). No recovery uplift has been granted due to significant unhedged foreign currency (FX) positions and the risk of time subordination for the longest-dated series of covered bonds given the absence of a clear cross-default clause among different series of covered bonds in Polish covered bond legislation.
The Stable Outlook reflects Fitch's view that a positive forward-looking rating assessment is currently difficult. The potential for a higher rating following upcoming amendments to the Polish covered bond law may be limited by the high FX mismatches between cover assets and covered bonds. The current draft law on Swiss franc mortgage redenomination may lead to a material decrease of the FX position of this programme. However, the adoption and the terms of a law remain uncertain in the context of its discussion at the upper house of the Polish parliament early September and upcoming parliamentary elections in October. Additionally, the rating impact of the law amendments will depend, in particular, on the issuer's ability to provide Fitch with sufficient historical performance data to perform a robust asset analysis.
Fitch has not assigned a recovery uplift as there is high uncertainty in assessing recoveries from the cover pool in a scenario where the Polish sovereign may have defaulted and 40% of the pool consists of Swiss-franc denominated loans. Fitch does not take into account currency hedging agreements as these are not registered in the cover pool.
The unchanged IDR uplift of one notch reflects the exemption of covered bonds from bail-in and Fitch's view that resolution by methods other than liquidation would be likely for Bank Pekao SA, PBH's parent, given its size and importance in the Polish banking sector.
The unchanged D-Cap of zero notches is driven by the absence of any mandatory liquidity provision in the Polish covered bonds legislation.
The 'A' rating would be vulnerable to a downgrade if either of the following occurred: (i) PBH's Long-Term IDR is downgraded by one or more notches; or (ii) the IDR uplift is reduced to zero notches.