(The following statement was released by the rating agency)MADRID/LONDON, March 06 (Fitch) Fitch Ratings has assigned Bankia, S.A.'s (the issuer, BBB-/Negative/F3/b) outstanding EUR43.7bn cedulas hipotecarias (mortgage covered bonds or CH) a 'BBB+' rating, with Negative Outlook.KEY RATING DRIVERSThe 'BBB+' rating of the CH is based on Bankia's Long-term Issuer Default Rating (IDR) of 'BBB-', a Discontinuity Cap (D-Cap) of 1 (very high discontinuity risk) and the level of overcollateralisation (OC) of 67% relied upon by Fitch, which provides recoveries in excess of 91% on CH assumed to be in default in a 'BBB+' scenario, corresponding to a two-notch uplift from the bank's IDR. Credit to OC ProjectionsFitch has applied an exception to its covered bonds rating criteria when determining the relied upon OC of 67%, under which a 20% haircut has been applied to the OC expected as of end March 2014 (84%) rather than to the lowest observed during the previous 12 months (78%). This is considering that Bankia's CH OC ratio is expected to range between 84% and 99% from end-March 2014 until end-2014, mainly due to the amortisation of EUR5.5bn of outstanding CHs. It further captures Bankia's short-term funding strategy and improved liquidity position, which is becoming less reliant on CH issuances and securitisations.OC ConstraintThe breakeven OC for Bankia's CH 'BBB+' rating is equal to 67%, meaning there is no cushion against a decrease in the level of OC taken into account by Fitch in its analysis. This level of OC constrains the CH rating to a maximum of two notches above the IDR based on recoveries given default, irrespective of the outcome of Fitch's discontinuity risk analysis.Weak Non-Residential Sub-Pool PerformanceFitch has derived conservative loss assumptions on the non-residential part of the cover pool, which represents 21% of the total mortgage book. Considering the deteriorating trend observed within the arrears performance data, Fitch's lifetime default and recovery expectations on the entire cover pool are 22.8% and 36.7%, respectively, under a base case scenario, and 32.3% and 31.2% under a 'BBB+' stress. This is associated with loss rate assumptions of 14.4% and 21.0% under a base case and 'BBB+' scenario, respectively.Large Residential Sub-PoolWhile the agency has incorporated conservative loss rate assumptions for the non-residential part of the cover pool, the overall credit view is broadly in line with other CH programmes rated by Fitch. This is due to the greater proportion of less risky residential mortgages (79%) within Bankia's cover pool compared with Spanish peers. D-Cap in Line With PeersIn line with the D-Cap assigned to the CH of other Spanish issuers rated below the sovereign, Bankia's CH D-Cap of 1 stems from the very high risk assessment of the liquidity gap and systemic component. This is explained by the hard bullet redemption of CH and the lack of specific protection against liquidity shortfalls post assumed issuer insolvency. Other components of Fitch's D-Cap analysis have been assessed as follows: low asset segregation risk, moderate-high alternative management risk (systemic and cover-pool-specific), and low privileged derivative risk exposure.RATING SENSITIVITIESDiminishing Support The 'BBB+' CH rating could be vulnerable to a one-notch downgrade if Bankia's IDR was downgraded by two notches, all else being equal. The Negative Outlook on the CH rating reflects the pressure on Bankia's IDR and the difference between the IDR and the Viability Rating. However, Bankia's CH rating would not be affected if the IDR was downgraded by just one notch, considering that covered bonds could qualify for a three-notch recovery uplift if the covered bonds rating on a probability of default basis was below investment grade and as long as the relied upon OC was greater than the estimated break-even OC ratio to provide for outstanding recoveries.Lack of OC BufferThe level of relied upon OC of 67% could decrease if Bankia's IDR was downgraded below 'F3', as an OC haircut of up to 30% would be applied (instead of 20%) in accordance with Fitch's covered bonds rating criteria. If this occurs, Fitch would analyse OC trends in light of the then prevailing OC projections and cover pool loss expectations.Potential D-Cap BenefitIf the level of relied upon OC for Bankia's CH increased to 76%, the rating of the covered bonds on a probability of default basis could reach a one-notch uplift over Bankia's IDR. This is because under such a scenario the cover pool would enable full and timely redemption of outstanding CHs in a 'BBB' scenario. This level of OC would also allow for a further two-notch uplift based on estimated recoveries given default of at least 91%.Contacts:Primary AnalystAntonio CasadoAssociate Director+34 91 702 57 76Fitch Ratings Espana S.A.U.General Castanos, 1128004 MadridSecondary AnalystAlvaro UtreraAssociate Director+34 91 702 57 75Committee ChairJuan David GarciaSenior Director+34 91 702 57 74 Media Relations: Christian Giesen, Frankfurt am Main, Tel: +49 69 768076 232, Email: christian.giesen@fitchratings.com.Additional information is available on 
  www.fitchratings.com.
  Applicable criteria, 'Covered Bonds Rating Criteria', dated 4 September 2013, 'EMEA RMBS Master Rating Criteria', dated 6 June 2013, 'EMEA Residential Mortgage Loss Criteria' dated 6 June 2013, 'EMEA Criteria Addendum - Spain - Amended, dated 20 March 2013, 'Criteria for Rating Granular Corporate Balance- Sheet Securitisations (SME CLOs)', dated 28 March 2013, 'Covered Bonds Rating Criteria - Mortgage Liquidity & Refinancing Stress Addendum', dated 4 February 2014, are available on 
  www.fitchratings.com.
 Applicable Criteria and Related Research: Covered Bonds Rating Criteria
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=717321
 EMEA RMBS Master Rating Criteria
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709893
 EMEA Residential Mortgage Loss Criteria
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709915
 EMEA Criteria Addendum - Spain - Amended
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=701809
 Criteria for Rating Granular Corporate Balance-Sheet Securitisations (SME CLOs)
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=704135
 Covered Bonds Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709665
 Additional Disclosure Solicitation Status 
  http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=822777
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