(The following was released by the rating agency)

SYDNEY, February 06 (Fitch) Fitch Ratings has assigned ASB
Bank Limited’s (ASB, ‘AA’/RWN/’F1+’) Series 2012-1 NZD200m
residential mortgage covered bonds a ‘AAA’ rating. The hard
bullet bonds due in February 2019 are guaranteed by ASB Covered
Bond Trustee Limited. ASB, under its covered bond programme, can
periodically issue covered bonds up to EUR7bn, secured on a
dynamic pool of first-ranking New Zealand residential mortgage
loans.

The rating is based on ASB’s ‘AA’ Long-Term Issuer Default
Rating (IDR) and a Discontinuity Factor (D-Factor) of 29.9%, the
combination of which enables the covered bonds to reach a ‘AAA’
rating on a probability of default basis. The programme’s
contractual asset percentage (AP) of 83.3% (equivalent to 20%
over-collateralisation) is equal to the AP supporting the ‘AAA’
rating. The level of AP supporting the rating will be affected,
among other things, by the profile of the cover assets relative
to outstanding covered bonds, which can change over time, even
in the absence of new issuances, and it cannot be assumed that
it will remain stable over time.

Fitch’s D-Factors measure the likelihood of an interruption
of payments on the covered bonds at the time of a default by
their issuer, on a scale between 0%-100%; 0% reflects a perfect
continuity, and 100% is equivalent to a simultaneous default of
the issuer and its covered bonds.

The D-Factor of 29.9% reflects the strength of asset
segregation through a bankruptcy remote SPV, which will act as
guarantor of the covered bonds. It also reflects the mitigant to
liquidity gap risk in the form of a pre-maturity test,
triggering the cash collateralisation of payments due over the
next 12 months upon a downgrade of the issuer below ‘F1+’, or
for future soft bullet issues, a 12-month maturity extension and
a cash reserve covering three months of payments due on the
covered bonds. The D-Factor further takes into account the
provision for the guarantor to take decisions after issuer
default, aided by the adequate quality of the issuer’s IT
systems as well as the lack of a covered bond regulatory regime
in New Zealand. All else being equal, the rating of ASB’s
residential mortgage covered bonds could still be maintained at
‘AAA’ if the issuer was rated at least ‘A’.

As of 31 December 2011, the cover pool consisted of 24,746
loans secured by first-ranking mortgages over New Zealand
residential properties with a total outstanding balance of
NZD3.622bn. The portfolio is wholly made up of full
documentation loans which have a weighted average current
loan-to-value ratio of 49.2%, and a weighted average seasoning
of 3.5 years. Fixed-rate loans represent 48.8% of the cover
pool. In a ‘AAA’ scenario, Fitch has calculated a weighted
average frequency of foreclosure for the cover assets of 10.9%,
and a weighted average recovery rate of 52.2%. The cover pool is
geographically distributed across New Zealand, with the largest
concentrations being in Auckland (65.7%) and Wellington (8.9%).
The agency’s mortgage default analysis is based on the
Australian mortgage default model criteria updated with a New
Zealand-specific default probability, market value declines, and
other risk adjustments that relate to the New Zealand mortgage
market.

Fitch has formed assumptions about the default probability
and losses of the cover pools under a ‘AAA’ stress scenario, as
well as tested maturity mismatches between the cover pools and
possible covered bond issuances in a wind-down scenario under
the management of a third party.