Moody’s cut two covered bond programmes of Banca Carige on Friday, following a one-notch downgrade the previous day on the back of challenges the Italian bank is facing in tackling non-performing loans.

Carige’s conditional pass-through residential mortgage-backed programme (Programme 3) was downgraded from A3 to Baa1 and “commercial” covered bonds from Baa2 to Baa3. A third, “residential” programme of Carige was affirmed at Ba1.

The “residential” programme, which also comprises commercial assets, was Carige’s first programme and that which it has hitherto used for public issuance. The “commercial” programme is understood to have been used or repo purposes, while the recently-established CPT programme is expected to be used for future issuance.

The cuts were prompted by a lowering last Thursday of Carige’s Counterparty Risk (CR) assessment from B3 to Caa1. Moody’s said its action reflects challenges that the bank is facing in reducing its stock of problem loans as requested by the European Central Bank whilst maintaining capital levels above prudential requirements and guidance.