Moody’s placed on review for downgrade mortgage covered bonds issued by Banco Popolare yesterday (Wednesday), after having put the Italian issuer on negative review because of concerns over deteriorating asset quality and the bank’s ability to generate capital.

Banco Popolare is rated Baa3, and was put on review for downgrade on Tuesday. (Click here for more.)

Any downgrade of Banco Popolare could result in a downgrade of the obbligazioni bancarie grantite (OBGs), which are rated A2, as a Timely Payment Indicator (TPI) of “improbable” gives them only limited TPI leeway, according to Moody’s.

Moody’s estimates cover pool losses of 27.4% in the event that Banco Popolare defaults, split between market risk of 22.4% and collateral risk of 5%, the latter deriving from a collateral score of 7.5%.

Overcollateralisation in the cover pool is 42.6%, according to Moody’s, of which 19.5% is provided on a “committed” basis, compared with an A2 rating target minimum OC level of 3.6%.