Moody’s upgraded 13 covered bond programmes of Spanish and Italian issuers yesterday (Wednesday), 11 to Aa2, after raising the two countries’ sovereign ceilings to that level, with analysts noting the actions will lead to improved regulatory treatment.

Moody’s carried out the rating actions – also placing one Italian covered bond programme on review for upgrade – after lifting Spain and Italy’s country ceilings from A1 and A2, respectively, on Tuesday.

In Spain, the programmes upgraded from A1 to Aa2 were Banco Santander cédulas hipotercarias (CH) and cédulas territoriales (CTs), Santander Consumer Finance CHs, Banco Bilbao Vizcaya Argentaria CHs and CTs, Bankinter CHs, and Bankoa CHs.

In Italy, upgraded from A2 to Aa2 were Intesa Sanpaolo mortgage covered bonds, UniCredit obbligazioni bancarie garantite (OBGs), Cariparma OBGs, and Deutsche Bank SpA mortgage covered bonds.

UBI Banca’s covered bond programme was upgraded from A2 to Aa3 – on review for upgrade to Aa2 – while Credit Emiliano covered bonds were upgraded from A2 to A1. Intesa’s public sector covered bonds were placed on review for upgrade, from A2.

The lifting of the sovereign ceilings came after Moody’s updated its methodology for local currency country risk ceilings in currency unions.

The rating agency said that the upgraded programmes were not constrained at lower levels by their Timely Payment Indicators (TPIs), and that the expected loss is compatible with the new ratings.

Analysts noted that the programmes upgraded into double-A space are now eligible for Level 1B under the Liquidity Coverage Ratio.

“For bank treasuries, risk weights and ECB eligibility are obviously among the most important drivers for an investment decision,” added Michael Spies, covered bond and SSA strategist at Citi. “In terms of treatment under the collateral framework at the ECB, things didn’t change. Only if the best rating is upgraded from BBB+ to A- do lower haircuts apply. This was not the case here.

“However, it is clearly a positive that risk weights went down for a number of the upgraded covered bond programmes. For risk weight calculation, the second best rating approach applies. This means that nearly all programs now enjoy a 10% risk weighting, coming from 20%.”

Meanwhile, Moody’s said the ratings of covered bonds programmes in other jurisdictions where country ceilings have been lifted, such as Portugal (Ba1, stable) and Ireland (Baa1, stable) have not been affected, mainly because the Timely Payment Indicator framework limits their maximum rating uplift over the covered bond anchor.

However, the rating agency also yesterday upgraded the long term bank deposit ratings of Dublin-based EAA Covered Bond Bank from Aa2 to Aa1, on stable outlook, following the raising of Ireland’s local currency country risk ceiling from Aa3 to Aa1. The rating is now at the same level as Germany public sector parent Erste Abwicklungsanstalt (EEA).