Fitch upgraded UniCredit OBGs as part of rating actions on Italian covered bonds that came after the rating agency lowered its refinancing spread assumptions for Italian residential mortgages, leading to a reduction in overcollateralisation requirements.

The rating agency recently eased its refinancing spread assumptions for Portuguese and Spanish residential mortgages, which led to lower breakeven overcollateralisation levels for a given rating and triggered some upgrades of covered bonds issued out of these countries.

Fitch on Friday announced rating actions on Italian covered bonds after a review of obbligazioni bancarie garantite (OBG) programmes and, notably, the upward revision of the breakeven asset percentage (AP) for a given rating.

It upgraded UniCredit OBGs from A to A+, and affirmed the ratings of six other Italian covered bond programmes at the following levels: Banca Carige (BBB+), Banca Monte dei Paschi di Siena (A), Banco Popolare (BBB+), and UBI Banca (A+), plus two Credito Emiliano programmes. Credito Emiliano OBGs guaranteed by Credito Emiliano CB were affirmed at A+, Credito Emiliano OBGs guaranteed by Canossa CB were affirmed at BBB+.

Banco Popolare di Milano OBGs, rated A-, were maintained on Rating Watch Negative.

“The agency has lowered its stressed refinancing spread assumptions used to calculate the net present value of future cashflows from Italian residential mortgages to 300bp-350bp from 500bp-575bp p.a. in a base case scenario,” said Fitch. “The refinancing spread assumptions for Italian mortgage loans to small and medium enterprises (SMEs) have also been lowered to 420bp-500bp from 650bp-700bp p.a.

“Among others, the revised assumptions take into account the declining trend observed on spreads from secondary market Italian residential mortgage-backed securities and government bonds.”

All the ratings except those on BPM’s OBGs are on negative outlook to reflect the status of the issuer ratings and the outlook on the Italian residential mortgage market.