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

The rating action follows the addition of 12-month extendible maturities (soft bullet) to ING's outstanding euro-denominated benchmark covered bonds after bondholders' consent. These bonds, which were originally issued with hard bullet maturity dates, constitute 68% of the outstanding covered bonds' balance. The remaining hard bullet series have scheduled maturity dates from January 2016 up to December 2043.

KEY RATING DRIVERS
The rating is based on ING's Long-term Issuer Default Rating (IDR) of 'A', an unchanged IDR uplift of 2, an unchanged Discontinuity Cap (D-Cap) of 4 (moderate risk) and the 77.3% asset percentage (AP) that ING commits to in its investor report, which provides more protection than the 78.5% 'AAA' breakeven AP. The Stable Outlook on the covered bonds rating reflects that on ING.

The 'AAA' breakeven AP remains unchanged at 78.5% because the new maturity extensions do not impact Fitch's assessment of the impact of the amortisation test (AT) on the breakeven AP. The 'AAA' breakeven AP is driven by Fitch's assessment of the AT under our stressed house price declines. This has had a large impact on the breakeven AP, in particular because the AT does not consider loan parts above 80% of the post-stress property value.

The D-Cap remains unchanged at '4' (moderate risk). In Fitch's view, the change constitutes an effective mitigant against liquidity gaps in the programme. Extendible maturities create a period during which liquidity can be raised from the cover pool should it become the sole source of payment. The maturity extension provides a comparable level of protection against liquidity risk as the liquidity provision in the form of a 12-month pre-maturity test.

RATING SENSITIVITIES
The 'AAA' rating would be vulnerable to downgrade if any of the following occurs: (i) ING'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 78.5%.

The Fitch 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.

At present, more than half of covered bonds programmes rated by Fitch include extendible maturities, with the 12-month extension the most common. The maturity characteristics of all programmes publicly rated by Fitch can be found in the Covered Bonds Surveillance Snapshot, dated 29 July 2015 on www.fitchratings.com.