Amendments to the Pfandbrief Act passed by Germany’s parliament on 16 May are generally ratings-neutral but will strengthen the country’s covered bond framework, improve clarity for investors, and enhance the quality of Pfandbriefe, said S&P today (Tuesday).

Standard & Poor’s focussed on an amendment that for the first time makes explicit the cover pool eligibility of claims against the Deutsche Bundesbank, which S&P credit analyst Ioan Isopel said could lead to wider use of central bank accounts by issuers as a tool to mitigate commingling and account bank risk.

The rating agency said that it would generally link its covered bond ratings to the rating of the account bank to reflect bank account risk and that although Deutsche Bundesbank is not rated, S&P considers it highly unlikely that a sovereign would exit the euro-zone. As a result, it aligns a euro-zone country’s central bank with that of the European Central Bank (unsolicited ratings, AAA/Stable/A-1+).

S&P highlighted some other amendments to the German Pfandbrief law, such as clarification for the statement of collateral purpose (Sicherheitszweckerklärung) with regard to land charges and foreign security interests; greater transparency about the loan-to-value ratio of loans in the cover pool and arrears levels; and further clarification of the engagement of the cover pool administrator (Sachwalter).

“Although we believe these changes will improve the quality of information available to market participants, we consider them broadly credit neutral under our ratings criteria,” said Isopel.

The updated Pfandbrief Act comes into effect 1 January 2014, said S&P.