The covered bond program benefits from strong jurisdictional support in Iceland. Icelandic legislation contains provisions related to foreign currency risk in the program, which allow us to assign a rating commensurate with jurisdictional support. We need further clarity about the legislative and practical implementation of Iceland's Bank Resolution Act before we are able to assess the framework's implications for the bank's covered bonds. The available credit enhancement is not sufficient to assign any notches of collateral-based uplift. The foreclosure frequency is driven by relatively high loan-to-value (LTV) and loan-to-income ratios. In our loss severity calculation, we assume a higher adjustment for inflation-linked mortgages to reflect their added risk on the borrower's home equity compared to non-indexed ones. S&P Global Ratings
