...Improved Discontinuity Risk: The revised Discontinuity Cap (D-Cap) assessment of three notches (moderate high discontinuity) reflects the liquidity risk protection in place, following the revision of the Polish covered bonds legislation, in particular the introduction of a conditional pass-through maturity profile and a six-month interest reserve. The D-cap is limited to three notches because of the risk that interest payments on covered bonds could be suspended before the announcement of insolvency, and because the interest reserve is invested in Polish sovereign bonds (A-/F2) that do not fully meet Fitch Ratings' expectations for liquid assets. High Credit Loss: Fitch's `A' credit loss of 20.8% constitutes the main component of its breakeven overcollateralisation (OC) for the rating. This component is predominantly driven by the stressed losses on the commercial real estate (CRE) sub-portfolio that are significantly higher than for the residential sub-portfolio, both reflecting a CVB...
