OREANDA-NEWS. Fitch Ratings has upgraded mBank Hipoteczny's (mBH: BBB/Stable/bbb-/F3) mortgage and public sector covered bonds to 'BBB+' from 'BBB' following the recent upgrade of mBH (see 'Fitch Upgrades Commerzbank to 'BBB+'; Outlook Stable', dated 07 March 2016 at www.fitchratings.com). The Outlook on the public sector programme is Stable and the mortgage covered bond programme remains on Rating Watch Positive (RWP).

KEY RATING DRIVERS
The upgrades of mBH's covered bond programmes are mainly driven by the upgrade of the bank's Issuer Default Rating (IDR) to 'BBB' and the legal minimum over-collateralisation (OC) of 10% that Fitch takes into account. Both covered bond ratings are rated based on a limited uplift approach by testing whether recoveries on defaulted covered bonds exceed 51% in a 'BBB+' scenario in line with a one-notch recovery uplift when conservative default and recovery assumptions are applied.

The mortgage covered bonds remain on RWP as Fitch expects that mBH's performance data will enable the agency to conduct a full and robust analysis. Combined with the amended Polish legislation, Fitch considers there is potential for an upgrade. However, Fitch expects that the FX exposure in mBH's mortgage covered bond programme will limit the number of notches of upgrade for the ratings.

The Stable Outlook on the public sector covered bonds mirrors that on mBH's Long-term IDR as the agency does not expect to be provided with data that would allow to rate the bonds beyond the application of the limited rating uplift.

RATING SENSITIVITIES
Fitch expects to resolve the RWP on the 'BBB+' rating of mBH's mortgage covered bonds in early 2Q16 when we have completed our review of the legal opinions and the historical performance data.

The 'BBB+' ratings would be vulnerable to a downgrade if the IDR is downgraded by 1 or more notches to 'BBB-' or below.