Moody’s upgraded the covered bonds of Hungary’s OTP Mortgage Bank and FHB Mortgage Bank yesterday (Monday), after raising Hungary to investment grade last week, with FHB’s issuance also benefitting from changes to its parent’s ownership.

Moody’s on Friday upgraded Hungary by one notch, from Ba1 to Baa3, citing the government’s declining debt burden, structural economic improvements that are expected to sustain positive growth rates, and a significant reduction in the country’s external vulnerability. As a result of the upgrade, Moody’s also raised Hungary’s foreign and local currency bond ceilings from Baa2 to Baa1.

The rating agency then yesterday evening upgraded the covered bonds of OTP Jelzálogbank Zrt (OTP Mortgage Bank) from Baa2 to Baa1, on the back of the higher sovereign ceilings.

Moody’s also upgraded the covered bonds of FHB Mortgage Bank from Ba1 to Baa2.

This followed the upgrade of the sovereign and an upgrade of FHB’s Counterparty Risk (CR) assessment from B2 to B1, which was made concurrently with an upgrade of the issuer’s local and foreign currency deposit ratings last Wednesday.

FHB and its covered bonds had been on review for downgrade, with Moody’s having previously cited rising concerns about the issuer’s solvency and franchise viability. But, concluding the review on Wednesday, Moody’s said the upgrades reflect a significant reduction in such risks, stemming from the issuer becoming more closely integrated into Hungary’s saving cooperatives sector, which further significantly increased its ownership in FHB last month.

As a result of the upgrade of the sovereign to investment grade, the Timely Payment Indicator (TPI) assigned to FHB’s covered bonds is now “probable”, having previously been “improbable”. The new TPI caps the rating in the Baa1-Baa3 range.

“Taking into consideration the structure of the programme and the applicable covered bond law, the TPI cap has been placed at Baa2 – in the middle of the range,” the rating agency said.