Fitch has rolled out updated covered bond rating criteria to reflect new bail-in regulations across some 10 European jurisdictions so far, affirming ratings and revising some outlooks, with an analyst noting that the rating agency departed from its criteria with respect to some cédulas hipotecarias.

Fitch, Canary Wharf

The rating agency on 10 March announced new covered bond rating criteria to take into account covered bonds’ exemption from bail-in under the European Bank Recovery & Resolution Directive (BRRD), and in late March began announcing the outcomes of its implementation of the new criteria.

It has affirmed the ratings of covered bond programmes in at least 10 countries so far: Belgium, Denmark, France, Greece, Ireland, Italy, the Netherlands, Portugal, Spain, and the UK. It lifted the outlooks of 10 programmes and lowered the outlooks of four.

In some cases the affirmations incorporate new covered bond anchor ratings after Fitch assigned an issuer default rating (IDR) uplift to reflect the rating agency’s view that in the event of a bank’s resolution there would be some protection to prevent the source of covered bond payments switching from the issuer to the cover pool.

Some of the rating actions also take into account negative outlooks assigned to bank IDRs in late March to reflect weakening state support.

The highest IDR uplifts assigned were two notches, which is the maximum Fitch grants for programmes of issuers in the BB IDR category and above, with one notch uplifts also having been assigned and in other cases no uplift granted.

The rating agency revised the outlooks of 14 programmes, with the change being downward in the case of four programmes and upward for 10 programmes.

Five Greek programmes had their outlooks revised, four from negative to positive (Alpha Bank, Eurobank Ergasias, National Bank of Greece (Programme II), and Piraeus Bank), and one from negative to stable (NBG Programme I).

The outlooks of three Italian programmes were revised from negative to positive (two UBI Banca programmes and obbligazioni bancarie garantite issued by UniCredit), and Fitch also revised the outlooks from stable to positive of cédulas hipotecarias issued by Banco Santander and Caja Laboral Popular Cooperativa de Crédito (CLCC).

The outlooks of cédulas hipotecarias and cédulas territoriales of Caja Rurales Unidas, meanwhile, were revised downward, from stable to negative, and negative outlooks on Bankia, Banco Mare Nostrum and NCG Banco mortgage covered bond ratings were maintained, in what a covered bond analyst said was an unwelcome departure by Fitch from its methodology.

The rating agency considers Spain to be a “covered bond-intensive jurisdiction” as far as cédulas hipotecarias are concerned, and said that this assessment contributes to the IDR uplift assigned to Banco Santander’s and CLCC’s programmes. However, for all other Spanish mortgage covered bond programmes, the rating agency disregards this assessment.

“This is because the importance of the domestic cédulas hipotecarias (CH) market is already reflected in the D-Cap of 1 assigned to these programmes,” said Fitch.

Fitch also revised from stable to negative the outlook on SNS Bank covered bonds, following a similar rating action on the Dutch bank’s IDR and because a potential downgrade of the IDR may not be entirely compensated by a newly assigned one-notch IDR uplift. The same logic was behind a revision from stable to negative on the outlook on Belfius Bank covered bonds.