Fitch placed the ratings of Cypriot covered bonds issued by Bank of Cyprus and Cyprus Popular Bank on Rating Watch Negative today (Wednesday) after putting the issuers on RWN as a result of uncertainties deriving from parliamentary discussions over imposing losses onto the banks’ depositors.

Fitch put on negative review the B ratings of the banks’ programmes that are backed by Greek assets – Bank of Cyprus (BoC) covered bonds with Greek cover pool and Cyprus Popular Bank (CPB) Programme 1 – and the B+ rating s of the banks’ programmes backed by Cypriot assets – BoC covered bonds with Cypriot cover pool and CPB Programme II.

Fitch noted that all the programmes have a Discontinuity Cap of 0, so any downgrade of the issuer will trigger a downgrade of its covered bond programme. The covered bonds have therefore been put on negative watch after a similar action was taken on their issuers on 19 March after the announcement of a possible one-off levy on the banks’ depositors.

Analysts noted that all Cypriot covered bonds are retained and already rated sub-investment grade, downplaying the significance of the rating action.