PKO Bank Hipoteczny S.A. – Mortgage Covered Bonds –

Rating Action: Moody’s upgrades ratings of covered bonds in Hungary and Poland

Global Credit Research – 09 Dec 2020

Madrid, December 09, 2020 — Moody’s Investors Service (“Moody’s”) has today taken a rating action on the following covered bonds:

– Upgrade the mortgage covered bonds issued by OTP Jelzalogbank Zrt. (OTP Mortgage Bank) (“OTP”) to A2 from Baa1

– Upgrade the mortgage covered bonds issued by UniCredit Jelzalogbank Zrt. (“UniCredit”) to A2 from Baa1

– Upgrade the mortgage covered bonds issued by ING Bank Hipoteczny S.A. (“ING”) to Aa1 from Aa3

– Upgrade the mortgage covered bonds issued by PKO Bank Hipoteczny S.A. (“PKO”) to Aa1 from Aa3

– Upgrade the mortgage covered bonds issued by mBank Hipoteczny S.A. (“mBank”) to Aa2 from Aa3

This rating action follows Moody’s update of its “Country Ceilings Methodology” published in December 2020.

For further information, please refer to Moody’s press release published on 7 December 2020: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1250209.

RATINGS RATIONALE

Today’s rating action on the covered bond ratings referenced above follows Moody’s raising of Hungary’s local-currency and foreign-currency bond ceilings to A2 from Baa1 and Poland’s local-currency and foreign currency bond ceilings to Aa1 from Aa3 on 7 December 2020, which follows the methodology update.

The ratings of OTP Jelzalogbank Zrt. (OTP Mtge Bk) – Mortgage Covered Bonds and UniCredit Jelzalogbank Zrt. – Mortgage Covered Bonds are now constrained by the long-term country ceiling for local currency bonds of A2.

The rating of ING Bank Hipoteczny S.A. – Mortgage Covered Bonds is now constrained by the long-term country ceiling for local currency bonds of Aa1.

The ratings of PKO Bank Hipoteczny S.A. – Mortgage Covered Bonds are now constrained by the long-term country ceilings for local and foreign currency bonds of Aa1.

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The current level of over-collateralisation (OC) for mBank Hipoteczny S.A. – Mortgage Covered Bonds exceeds the minimum level consistent with Aa1 ratings but looking ahead, Moody’s does not expect that OC will be maintained at levels consistent with covered bond ratings higher than Aa2.

Full details of the ceilings movements can be found at http://www.moodys.com/viewresearchdoc.aspx?docid=PR_436193.

KEY RATING ASSUMPTIONS/FACTORS

Moody’s determines covered bond ratings using a two-step process: an expected loss analysis and a TPI framework analysis.

EXPECTED LOSS: Moody’s uses its Covered Bond Model (COBOL) to determine a rating based on the expected loss on the bond. COBOL determines expected loss as: (1) a function of the probability that the issuer will cease making payments under the covered bonds (a CB anchor event); and (2) the stressed losses on the cover pool assets following a CB anchor event.

The CB anchor for Hungarian and Polish programmes is the CR assessment plus 1 notch.

The cover pool losses are an estimate of the losses Moody’s currently models following a CB anchor event. Moody’s splits cover pool losses between market risk and collateral risk. Market risk measures losses stemming from refinancing risk and risks related to interest-rate and currency mismatches (these losses may also include certain legal risks). Collateral risk is derived from the collateral score, which measures losses resulting directly from the cover pool assets’ credit quality.

The cover pool losses of OTP Jelzalogbank Zrt. (OTP Mtge Bk) – Mortgage Covered Bonds are 44.4%, with market risk of 36.1% and collateral risk of 8.3%. The collateral score for this programme is currently 12.4%. The over-collateralisation in this cover pool is 21.7%, of which the issuer provides 0% on a “committed” basis. Under Moody’s COBOL model, the minimum OC consistent with the A2 rating is 0%. These numbers show that Moody’s is not relying on “uncommitted” OC in its expected loss analysis.

The cover pool losses of UniCredit Jelzalogbank Zrt. – Mortgage Covered Bonds are 45%, with market risk of 38.3% and collateral…