OREANDA-NEWS. Fitch Ratings has assigned Slovenska Sporitelna's (SLSP; BBB+/Stable) mortgage covered bonds (Hypotekarne zalozne listy) a 'A' rating with Stable Outlook.

KEY RATING DRIVERS
The 'A' rating is based on SLSP's Long-term Issuer Default Rating (IDR) of 'BBB+', adjusted by an IDR uplift of one notch, and on the lowest level of overcollateralisation (OC) recorded during the preceding 12 months of 16.2%, which provides at least 51% recoveries on the covered bonds given default in a 'A' rating scenario. The latter allows for a further one-notch uplift. The Stable Outlook on the mortgage covered bonds mirrors that on SLSP's Long-term IDR.

The IDR uplift of 1 reflects the covered bonds exemption from bail-in, that the issuer is regarded as systemically important in its domestic market and is the largest retail bank in Slovakia, so that Fitch considers that resolution by other means than liquidation is likely.

Fitch applied a limited rating uplift approach as available market information did not enable the agency to perform a full asset analysis. In order to test if the lowest level of OC from the last 12 months of 16.2% provides at least 51% recoveries on the covered bonds given default in a 'A' rating scenario, Fitch applied conservative asset default and recovery assumptions. Fitch also analysed the Slovak covered bonds framework and concluded that the cover assets are sufficiently ring-fenced from the rest of the issuer's balance sheet.

As of 30 June 2015, SLSP's EUR800.6m outstanding mortgage covered bonds were secured by a cover pool of EUR990m, resulting in a nominal OC of 23.7%. All assets and covered bonds are euro-denominated. The covered bonds are secured by a dynamic pool of 97% residential mortgages and 3% substitute assets in the form of debt issued by the Slovak government.

RATING SENSITIVITIES
Given Fitch's application of the limited rating uplift approach, the rating of the covered bonds is directly linked to SLSP's rating. Changes to the bank's IDR would be reflected on the covered bonds rating.

If the OC that Fitch considers in its analysis drops to the legal minimum requirement of 0% on a nominal basis, the 'A' rating of SLSP's mortgage covered bonds would not be affected.

More details on the portfolio and Fitch's analysis will be available in a New Issue report, which will shortly be available at www.fitchratings.com.