(The following statement was released by the rating agency)LONDON, May 16 (Fitch) Fitch Ratings has affirmed Danske Bank's (Danske, A/Stable/F1) mortgage covered bonds secured by Cover Pool I at 'AAA' with a Stable Outlook. The rating action follows an annual review of the programme. As of 31 December 2013, Danske Category I had EUR12.2bn of covered bonds outstanding.KEY RATING DRIVERSDanske Category I covered bonds' rating is based on Danske's Long-term Issuer Default Rating (IDR) of 'A', a two-notch IDR uplift, a Discontinuity Cap (D-Cap) of 3 (moderate high risk), and the overcollateralisation (OC) between the cover pool and the covered bonds. The agency takes into account the lowest observed nominal OC of the past 12 months (17.4%) in its analysis, as Danske's Short-term IDR is above 'F3'.This compares with the 'AAA' breakeven OC of 15.0% for the programme.The 'AAA' break-even OC for Danske I covered bonds rating has decreased to 15.0% from 15.8% previously, mainly due to increased margins on the Norwegian mortgages and the revision of a conservative assumption implemented due to previously missing historical prepayment data on the pool. These positive changes are partially offset by an increase in 'AAA' expected credit losses for the cover pool to 9.2% from 8.6% previously.Danske I's mortgage balance consists of 53% Swedish residential mortgages and 47% Norwegian residential mortgages. While the pool characteristics have not significantly changed since the last programme review, Fitch has reviewed its assumptions for analysing Swedish residential mortgages, which is the main driver of the increase in expected losses for the pool. The agency increased its house price decline assumption for the Swedish housing market, resulting into a decline in recovery rates calculated for Swedish assets.Danske I's pool comprises a large proportion of mortgages secured by shares in housing associations (SHA). SHA loans represent 7.8% of the Norwegian assets and 30.0% of the Swedish assets in the pool. These mortgages are exposed to the credit risk of both the borrower and the housing association because members of housing associations are also liable for the common debt of the association itself. Therefore, Fitch applied a more conservative approach to SHA mortgages compared with standard residential mortgages. As of end-December 2013, the pool's outstanding balance was EUR14.7bn. Nearly all Swedish mortgages have an interest-only (IO) redemption profile, which is in line with the loan characteristics observed in the Swedish mortgage market. About 56% of Norwegian assets are IO and 38% have a flexible repayment structure, similar to the cover pools of other Norwegian programmes. The weighted average life (WAL) of the pool cash flows is 28.1 years while the WAL of the covered bonds is 6.1 years. Fitch applies both high and low prepayment (CPR) assumptions in its cash flow analysis. The driver of the breakeven OC level for Danske I covered bonds is the high prepayment scenario due to the conservative stress of 45% CPR and the high negative carry costs, resulting from Fitch's reinvestment assumptions and the relatively high margin on the bonds post swaps.The bonds have been issued in EUR, CHF, NOK and SEK at a fixed and variable rate, while nearly all mortgages in the pool pay a floating rate. Asset and covered bond swaps are in place with Danske Bank to hedge the currency and interest rate mismatches in the programme. RATING SENSITIVITIESDanske I's covered bonds would be vulnerable to a downgrade if any of the following occurs: (i) the IDR is downgraded by more than two notches to 'BBB' or lower; (ii) the D-Cap falls by more than two categories; or (iii) the OC Fitch gives credit to in its analysis drops below Fitch's 'AAA' breakeven level of 15.0%.The Fitch breakeven OC for the covered bond rating will be affected, among other factors, by the profile of the cover assets relative to outstanding covered bonds, which can change over time, even in the absence of new issuance. Therefore the breakeven OC for the 'AAA' rating cannot be assumed to remain stable over time. Contact: Primary AnalystIva DetelinovaAnalyst+44 20 3530 1663Fitch Ratings Limited30 North ColonnadeLondon E14 5GNSecondary AnalystIeva Snejkova, CFADirector+44 20 3530 1276Committee ChairpersonCosme de MontpellierSenior Director+44 20 3530 1407 Media Relations: Christian Giesen, Frankfurt am Main, Tel: +49 69 768076 232, Email: christian.giesen@fitchratings.com.Additional information is available at 
  www.fitchratings.com.
  Applicable criteria, 'Covered Bonds Rating Criteria' dated March 2014, 'Covered Bonds Rating Criteria - Mortgage Liquidity and Refinancing Stress Addendum', dated February 2014, 'Counterparty Criteria for Structured Finance and Covered Bonds' and 'Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum' both dated May 2014, 'EMEA Criteria Addendum Norway' dated March 2014 and 'EMEA RMBS Master Rating Criteria' dated June 2013 are available at 
  www.fitchratings.com.
 Applicable Criteria and Related Research: Covered Bonds Rating Criteria
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=738975
 Covered Bonds Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709665
 Counterparty Criteria for Structured Finance and Covered Bonds
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158
 Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744175
 EMEA Criteria Addendum - Norway
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=739415
 EMEA RMBS Master Rating Criteria
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709893
 Additional Disclosure Solicitation Status 
  http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=830457
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