AIB Mortgage Bank’s ACS were upgraded to AAA by S&P on Monday, completing a hat-trick of recent upgrades for the Irish issuer’s covered bonds. Moody’s meanwhile cited an improvement in the credit quality of Irish covered bonds, due to rising house prices and positive developments in regulation and the banking sector.

On 13 January, Standard & Poor’s raised the issuer credit rating (ICR) of Allied Irish Banks, AIB Mortgage Bank’s parent, from BB+ to BBB-. The rating agency subsequently upgraded AIB Mortgage Bank’s covered bonds from AA+ to AAA on Monday. AIB’s ICR is the starting point in S&P’s analysis of AIB Mortgage Bank’s covered bonds.

The upgrade is the third that AIB’s covered bonds have benefitted from in recent months. Moody’s upgraded its covered bonds from Aa1 to AAA on 29 November following an upgrade of AIB’s Counterparty Risk assessment and a review of the issuer’s overcollateralisation plans. On 25 November, Fitch lifted the Irish issuer’s ACS from A+ to AA+ on the back of changes to its covered bond criteria.

Also on Monday, Moody’s said in a sector comment that the credit quality of Irish covered bonds has improved in recent years, on the back of a continued rise in house prices (which the rating agency expects to increase a further 5% this year), positive developments in Irish sovereign and bank credit quality, and supportive European regulation.

The rating agency said an overall tightening of lending standards – including LTV limits implemented in 2015 – should also contribute to an improvement of credit quality over time, but said the impact will depend on how issuers manage their cover pools – noting that Bank of Ireland Mortgage Bank and EBS Mortgage Bank include almost no loans originated in 2015 or 2016 in their cover pools.

The inclusion of restructured loans that are performing to their modified terms is seen as having the potential to increase credit risk in cover pools, but Moody’s said this is mitigated by OC requirements and the improving Irish economy.