Fitch Ratings: Major Australian Banks' CVB Ratings Unaffected by Pandemic

(The following statement was released by the rating agency) Fitch Ratings-Sydney-22 March 2021: The 'AAA' ratings on covered bonds issued by the four major Australian banks have been unaffected by the impact of the pandemic despite a one-notch downgrade of the banks' Long-Term Issuer Default Ratings (IDRs) in April 2020 and prolonged economic weakness that persists in some industry sectors from Covid-19 containment measures, Fitch Ratings says in a peer review report. The 'AAA' ratings have buffers to withstand downgrades of three notches in the issuing banks' Long-Term IDRs and are supported by a seven-notch uplift above the banks' Long-Term IDRs. The four programmes in the peer review, accounting for AUD89.0 billion of covered bonds outstanding at December 2020, are issued by Australia and New Zealand Banking Group Limited (ANZ, A+/Negative/F1), Commonwealth Bank of Australia (CBA, A+/Negative/F1), National Australia Bank Limited (NAB, A+/Negative/F1) and Westpac Banking Corporation (WBC, A+/Negative/F1). Borrowers took up payment holidays of up to six months amid the pandemic, but most of the loans have now reverted back to normal mortgage repayments. The share of loans on payment holidays in the cover pools, by balance, at end-December 2020 averaged around 1.6%, down from the 8.8% peak in June 2020. Fitch expects these loans to remain in the pools, unless removed by the issuers. The dual-recourse nature of covered bonds means issuers remain liable to pay irrespective of the cover pools' performance. We expect the prolonged use of containment measures to negatively affect Australian residential loans. As part of our ratings analysis we performed a downside sensitivity stress to the programmes by increasing the probability of default and decreasing the recovery rate on the mortgage loans, as well as increasing the stressed cost to refinance the cover pools. We found that while the relied-upon asset percentages (APs) supporting the 'AAA' ratings would provide less protection than the stressed 'AAA' breakeven APs, Fitch believes there are mitigating factors that would support the 'AAA' ratings. More information on the programmes is available in the peer review report, "Australia Mortgage Covered Bonds Programmes: Major Banks - Peer Review", at www.fitchratings.com or by clicking the link above. Contact: Jimmy Tanzil Senior Analyst +61 2 8256 0305 Fitch Australia Pty Ltd Suite 15.01, Level 15, 135 King Street, Sydney NSW 2000 Marija Buzevska Senior Analyst +61 2 8256 0340 Media Relations: Peter Hoflich, Singapore, Tel: +65 6796 7229, Email: peter.hoflich@thefitchgroup.com Leslie Tan, Singapore, Tel: +65 6796 7234, Email: leslie.tan@thefitchgroup.com Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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