Moody’s upgraded the covered bonds of FHB Mortgage Bank to Baa1 yesterday (Thursday) following an upgrade of the Hungarian issuer’s deposit ratings that reflected its closer integration into the country’s saving cooperatives sector.

On Tuesday, Moody’s upgraded the local and foreign currency deposit ratings of FHB Mortgage Bank from B3 to B2. This triggered an upgrade of the issuer’s Counterparty Risk (CR) assessment from B1 to Baa3. The bank’s ratings were also placed on review for further upgrade.

Moody’s said the upgrades primarily reflect the closer integration of the bank into Hungary’s savings cooperatives sector, which has reduced corporate governance risks and has also led the rating agency to increase its assumptions for sector support from moderate to high.

The review for upgrade is driven by the expectation of further gradual improvements in FHB’s standalone financial metrics, which, Moody’s said, together with affiliate support from the sector will likely result in a further rating upgrade.

The rating agency subsequently upgraded FHB Mortgage Bank covered bonds from Baa2 to Baa1 yesterday afternoon.

As a result of the upgrade to the CR assessment, the covered bond anchor for the programme is now one notch higher. Moody’s said the programme’s Timely Payment Indicator (TPI) of “probable” caps the covered bond rating in the A3-Baa2 range.

“Taking into consideration the structure of the programme and the applicable covered bond law, the TPI cap has been placed at Baa1 (in the middle of the range),” it said. “At the same time, the covered bond ratings are also constrained by the Baa1 local and foreign currency bond ceilings for Hungary.”