Fitch cut Bank of Cyprus and Cyprus Popular Bank covered bonds backed by Cypriot and Greek mortgages yesterday (Tuesday), after having downgraded the sovereign and the issuers to BB- on Friday.

The rating agency also incorporated updated refinancing cost assumptions for Cyprus into the analysis following publication of assumptions on liquidity gap risks in mortgage covered bond programmes.

Fitch cut BoC and CPB mortgage covered bonds backed by Greek residential mortgages by one notch, from BB to BB-, the same level as the issuers’ ratings. A Greece country ceiling of B- applies to programmes secured by Greek assets, according to Fitch, meaning that no uplift for recoveries given default can be granted above the banks’ IDRs, which constitute a floor for the covered bond ratings.

The banks’ covered bonds backed by Cypriot mortgages were downgraded by two notches, from BBB- to BB, incorporating a one notch uplift for recoveries.

The rating agency said that a downgrade of the banks’ issuer default ratings (IDRs) would, all else being equal, lead to a downgrade of their covered bonds, so a negative outlook on the IDRs applies to the covered bonds’ rating, too.