NIBC Bank’s covered bond programme was downgraded from Aa2 to A1 by Moody’s yesterday (Monday), following a downgrade of the Dutch bank’s senior unsecured rating from Baa2 to Baa3 on Friday.

Moody’s said the rating downgrade was not caused by a deterioration of the quality of assets in the cover pool, but rather the impact of the senior unsecured downgrade on its timely payment indicator analysis.

Moody’s said the covered bond programme rating had been lowered to the highest achievable covered bond rating under its TPI criteria, given that the issuer was downgraded and the programme has a TPI of “probable”.

Any downgrade of the issuer’s ratings increases the expected loss on the covered bond programme under Moody’s methodology, but the expected loss analysis was not a factor the downgrade, said the rating agency, because of a high level of overcollateralisation in the cover pool, of 25.3% when the minimum consistent with the previous Aa2 rating was 18.5%.

Moody’s cut NIBC’s senior unsecured rating in line with a downgrade of the its bank financial strength rating from C- to B+.

“This rating level reflects in particular the bank’s material refinancing challenge over the coming years as government guaranteed debt falls due, its still limited franchise in competitive markets, its relatively high risk profile, and its volatile income statement,” said the rating agency. “These weaknesses are partly offset by significant holdings of liquid assets, strong capital ratios, a solid track record of expertise in its niche markets, and fair efficiency.”