Fitch’s view of the liquidity of New Zealand’s covered bond market has improved given growth in issuance from the country, the rating agency revealed today (Friday) when affirming Bank of New Zealand’s covered bonds with a decreased Discontinuity Factor (D-Factor).

The liquidity of a country’s covered bond market is one factor Fitch takes into account when considering what D-Factor it assigns a programme, and after a review of BNZ’s programme the rating agency lowered the D-Factor of the bank’s programme from 26.4% to 22.9%. Fitch said that the move was due to a re-evaluation of the liquidity of New Zealand’s covered bond market.

“New Zealand has now seen issuance by the four largest New Zealand banks with a total issuance amount of approximately NZ$10.2bn [Eu6.72bn],” said the rating agency. “Looking forward the agency expects there will be continued issuance by New Zealand’s major banks, which will be further supported by the formalisation of a legislative framework, which is currently being reviewed by the New Zealand government.”

As well as BNZ, ANZ National, ASB Bank and Westpac NZ have already sold covered bonds, while Kiwibank is eyeing issuance.

Fitch affirmed BNZ’s covered bonds at AAA.

The rating agency noted that it is consulting on changes to its methodology and that, if implemented as proposed, the rating of BNZ’s covered bonds would not be impacted, but would raise the minimum issuer default rating (IDR) at which the AAA rating could be maintained from A- to A. Fitch’s proposals also include changes to its D-Factor methodology.