Moody’s placed Caixa Económica Montepio Geral mortgage covered bonds, rated Baa3, on review for downgrade today (Wednesday) to mirror the status of the rating of the issuer.

The rating agency last month proposed a change to its covered bond methodology in the form of an alternative anchor point to the one it currently uses in its covered bond analysis – a bank’s senior unsecured rating – and if the revised methodology is implemented as proposed in a request for comment, Montepio’s mortgage covered bond rating could benefit, according to Moody’s.

The rating agency said that it is leaving on review for downgrade any covered bond ratings potentially affected by cuts of bank senior unsecured ratings until it has completed its analysis of the EU bank bail-in regime proposal that is behind its review of the covered bond rating anchor point.

Moody’s rates Montepio Ba3. It is reviewing for downgrade the bank’s D- standalone Bank Financial Strength Rating (BFSR), which prompted the rating action on its long term debt and deposit ratings.

There has been a significant rise in non-performing loans at Montepio and the bank’s earnings have weakened, according to Moody’s. It said that the continuing weakness of the Portuguese economy is likely to exert further pressure on the bank’s asset quality and profitability.

The rating agency said it will assess Montepio’s ability to generate sufficient earnings to offset any increase in provisioning requirements and thus ensure a sufficiently resilient capital base, and its ability to raise capital from private resources without needing to resort to public sector support.