Fitch upgraded Banco Santander cédulas hipotecarias (CH) from AA- to AA yesterday (Thursday) and improved the outlook on Bankia CH from negative to stable at BBB+, while affirming the ratings of five other programmes.

The rating agency noted that, as systemically important in their domestic market, Bankia and Santander benefit from an additional notch of IDR uplift on top of the one notch granted to all Spanish CH programmes – except CH of CRH – in line with covered bonds’ exemption from bail-in and Fitch’s view that Spain is a covered bond-intensive jurisdiction for mortgages.

Fitch has meanwhile reduced the refinancing spreads for Spanish mortgage loans from 450bp-550bp per annum in a base case scenario 375bp-550bp, resulting in lower breakeven overcollateralisation (OC) for most programmes. It said this reflects a significant reduction in spreads of CH and senior tranches of Spanish RMBS over the past two years. It noted that refinancing spreads for the Spanish public sector have not been changed.

“In terms of the breakeven OC components for all Spanish CH programmes, the credit and asset disposal loss components are the most relevant and are generally higher than in other jurisdictions due to the relatively high proportion of developer and commercial loans forming part of the mortgage cover pools,” it added. “The asset disposal loss component is also influenced by the high, albeit declining, refinancing spreads.”

All Spanish covered bond programmes, except CH of CRU, have a Discontinuity Cap (D-Cap) of 0 (full discontinuity risk), which Fitch said reflects the potential for liquidity shortfalls to arise if a covered bond payment falls due shortly after recourse to the cover pool has been enforced.

CRU CH have a D-Cap of 1 (very high discontinuity risk), which captures the benefit to it of Spain being a covered bond-intensive jurisdiction, noted Fitch, explaining that under its methodology this status can be reflected in either the D-Cap or the IDR analysis.

The five other programmes that were affirmed were: CH of Banco Mare Nostrum, at BBB+/negative; CH of Caja Laboral Popular Cooperativa de Crédito, at A+/stable; CH of Cajas Rurales Unidas Sociedad Cooperativa de Crédito, BBB+/negative; CH of NCG Banco, BBB+ negative; and cédulas territoriales of CRU, at BBB/negative.