Fitch Ratings has assigned Bank of New Zealand's (BNZ, A+/Stable/F1) Series 15 EUR750 million fixed-rate mortgage covered bonds a rating of 'AAA'.

The Outlook is Stable.

This issuance brings the total outstanding covered bonds to NZD6.7 billion equivalent, of which NZD5.46 billion was issued by BNZ and NZD1.3 billion by BNZ International Funding Limited, a guaranteed issuing vehicle BNZ used for international funding.

KEY RATING DRIVERS

The covered bond rating is based on BNZ's Long-Term Issuer Default Rating (IDR), the various uplifts above the IDR granted to the programme and the overcollateralisation (OC) protection provided through the programme's asset percentage (AP).

The covered bonds are rated four notches above the bank's IDR. This is out of a maximum achievable uplift of seven notches, consisting of a resolution uplift of zero notches, a payment continuity uplift (PCU) of six notches and a recovery uplift of one notch. For its analysis, Fitch relies on the highest nominal AP in the last 12 months of 83.3%. This provides more protection than Fitch's 'AAA' breakeven AP of 98.0%.

The Stable Outlook reflects a three-notch buffer against an IDR downgrade.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade:

The covered bond rating would be vulnerable to a downgrade if the bank's IDR were downgraded by four or more notches to 'BBB' or below or if the relied-upon AP provided less protection than Fitch's 'AAA' breakeven AP of 98.0%. There is no rating impact if the relied-upon AP in the programme equals the maximum 97.0% contractual AP stipulated in the programme documents, as it supports a greater level of OC than Fitch's 'AAA' breakeven AP.

Fitch's 'AAA' breakeven AP for the covered bond rating will be affected, among other things, by the profile of the cover assets relative to the outstanding covered bonds, which can change over time, even in the absence of new issuance. Therefore, it cannot be assumed that the 'AAA' breakeven AP, which maintains the covered bond rating, will remain stable over time.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

The rating on the covered bonds is at the highest level on Fitch's rating scale and cannot be upgraded.

Date of Relevant Committee

15 October 2024

SOURCES OF INFORMATION

The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated bonds is public.

The principal sources of information used in the analysis are described in the applicable criteria.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS

Covered bond ratings are primarily driven by the credit risk of the issuing financial institution, as measured by its Long-Term IDR. Fitch does not believe these risks can be completely delinked from the bank's Long-Term IDR.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the programme, either due to their nature or the way in which they are being managed by the programme. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/topics/esg/products#esg-relevance-scores

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