Fitch is withdrawing its A rating of UBI Banca’s main covered bond programme following a request from the Italian issuer, which has a new AA (low) DBRS rating for the issuance that will lift the bonds’ average rating to double-A and bring improved regulatory treatment.

Fitch on Monday gave 30 days’ notice of its plans to withdraw the rating of UBI Banca’s Eu15bn residential mortgage obbligazioni bancarie garantite (OBG) programme – one of the issuer’s two mortgage OBG programmes, with the other used only for retained deals.

Fitch’s last rating action on the programme was to affirm the A rating, with stable outlook, on 30 June. The rating agency had downgraded the programme from A+ to A in April following a downgrade of the bank’s Issuer Default Rating. Under its rating criteria, the OBGs could achieve a maximum rating of A+, Fitch said, if the issuer were to publicly commit to an overcollateralisation (OC) level of 21%, with the current level of OC being 18.3%.

UBI announced that that it had requested Fitch’s rating be withdrawn on Monday and said the programme will be rated by DBRS, and DBRS, also on Monday, assigned the programme a provisional rating of AA (low), under review with developing implications.

The rating agency said this reflects a LSF (legal and structuring framework) assessment of “strong”, a Cover Pool Credit Assessment of BBB, an LSF-Implied Likelihood of A (high), and one notch of uplift for good recovery prospects.

The covered bonds will also continue to be rated Aa2 by Moody’s, UBI said.

Cristina Costa, senior covered bond analyst at Société Générale, noted that UBI’s rating moves mean the OBGs’ average rating will be lifted.

“More and more issuers seem to be doing rating arbitrage,” she said. “By choosing to drop Fitch in favour of DBRS, UBI Banca’s average rating would now be in the double-A rating.

“As a result, UBI Banca’s covered bonds would be eligible for Level 1 LCR, would have lower risk weights and lower Solvency II risk weight charges, and would benefit from lower ECB repo haircuts.”

DBRS added that it is reviewing the implications of recent developments in European regulation and legislation regarding the Bank Recovery & Resolution Directive and that the review with developing implications on UBI Banca’s covered bonds will be resolved only once a review on the issuer rating is resolved and it has finalised proposed changes to its European covered bond rating methodology.