Cyprus’s Marfin Popular Bank has amended the terms of Greek residential mortgage backed covered bonds it has issued and retained, but they remain on Rating Watch Negative at Fitch, with new criteria for Greek mortgages published by the rating agency yesterday (Thursday) a factor in the review.

The covered bonds are rated BBB and have been retained by the BBB- issuer.

In a release on the programme yesterday, Fitch cited its updated criteria assumptions for assessing credit risk in Greek residential mortgage loan pools. The main changes include an increase to higher rating category foreclosure frequency assumptions, peak-to-trough (PTT) house price decline (HPD) assumptions outside Athens, and recovery timing, as well as a reduction in low prepayment rate assumptions.

Recent amendments by Marfin Popular were incorporated into Fitch’s analysis but did not contribute to the rating action, said Fitch’s covered bond analyst Spyros Michas.

“We found the amendments did not have any material impact on the programme,” he said. “The amendments have been taken into account in the new rating but they are not part of the reason for still having a watch on this programme.

“The watch rather reflects our view that the ongoing economic developments in Greece could expose the programme to event risks in the short term. Indeed, the watch is currently applied across our rating universe of Greek covered bonds.”

A representative of Marfin Popular said the amendments Fitch referred to are related “exclusively to amendments of the final terms of certain outstanding issues [rather] than amendments to the programme structure”.

Marfin Popular has no programme amendments in the pipeline at the moment, she added.

Although the covered bonds’ maturities have been extended by two years – Eu1bn Series 2008-1 bonds from 17 November 2011 to 18 November 2013 and Eu1bn Series 2010-2 bonds from 18 August 2011 to 19 August 2013 – their extension periods remains one year and are seen as inadequate by Fitch.

Fitch said that the one year extension periods of the covered bonds do not provide sufficient time for a successful asset refinancing through forced sales after an assumed issuer default. The rating agency therefore views the covered bonds’ probability of default (PD) as equal to that of the issuer itself.

The programme’s Discontinuity Factor remains at 100%, “driven by the loans in the cover pool being secured by properties situated in Greece”.

Fitch found that an asset percentage of 95% would still provide “good recoveries” in a BBB scenario – which is the maximum asset percentage sufficient to support Fitch’s stress scenarios commensurate with the assigned rating – allowing for a one notch uplift to BBB of the covered bond ratings from the issuer rating.

The rating agency also cited recent developments fuelling increased uncertainty in Greece when announcing that it was maintaining the review yesterday. All other things being equal, a downgrade of the issuer would lead to a downgrade of the covered bonds, said Fitch.