Moody’s placed Ba1 mortgage and public sector-backed covered bonds issued by Spain’s Catalunya Banc on review for downgrade yesterday (Wednesday) following its decision to place the issuer on review for downgrade because of asset quality and profitability concerns.

The rating agency placed B3 rated Catalunya Banc on review for downgrade yesterday to reflect its view of the weak performance of the bank, chiefly in terms of asset quality and profitability. Moody’s said that these have continued to deteriorate since the bank was recapitalised at the end of 2012, as evidenced by the problem loans ratio, which increased from 16.4% at the end of 2012 to 22.3% at the end of March this year. Moody’s noted that this performance “exposes the bank to the comprehensive assessment of the European Central Bank”.

Under Moody’s methodology, the covered bond anchor point for Catalunya Banc mortgage and public sector-backed covered bonds is the senior unsecured rating plus zero notches due to the debt ratio being below 5%. Moody’s assigns a Timely Payment Indicator of “probable” to Catalunya’s cédulas programmes, which it said provides for limited protection against an issuer downgrade leading to a cut of the covered bonds.