Moody’s placed the mortgage covered bonds of Hypo Tirol on review for upgrade on Thursday, and will now assess whether OC levels will allow a Aa1 rating. It upgraded the Austrian issuer on the back of strengthening fundamentals and a more balanced maturity profile, partly thanks to a recent covered bond.

Last Tuesday, Moody’s upgraded Hypo Tirol’s senior unsecured and deposit ratings from Baa3 to Baa2, and upgraded its counterparty risk (CR) assessment from Baa2 to Baa1. The rating agency cited a continued strengthening of the Austrian bank’s financial fundamentals, in particular an improvement of its asset quality, capitalisation and liquidity profile.

“Moody’s believes that the bank’s significant investments to improve its control over the Italian legacy loan portfolio are increasingly paying off,” it said. “Losses from the Italian business segment have levelled off over the past years and the bank’s non-performing loan ratio is on an improving trajectory.

“Some earnings retention and, more significantly, a decline in risk weighted assets have led to rising capital ratios, since the expiry in 2015 of the cap on capital imposed by the European Commission following the bank’s state aid proceedings.”

The rating agency also noted that Hypo Tirol has successfully prefunded upcoming bond maturities, which were concentrated in September, and said it will benefit from a more balanced maturity profile and better diversified funding going forward. This was partly achieved, Moody’s said, through the issuance of a Eu250m seven year mortgage Pfandbriefe in May.

“With sufficient cash reserves following its latest Eu250m mortgage covered bond issuance in May 2017 and with additional issuance leeway under its covered bond programs, Hypo Tirol will meet its remaining 2017 maturities, which peak in September due to the expiry of most of the bank’s deficiency-guaranteed debts,” it said.

The outlook on Hypo Tirol’s debt and deposit ratings was changed from stable to positive, and Moody’s said the ratings may be further upgraded in 2018.

As a result of the upgrade to the CR assessment, Moody’s on Thursday placed the Aa2 rating of Hypo Tirol’s mortgage covered bonds on review for upgrade. At the same time, it affirmed the Aa1 rating of the issuer’s public sector covered bonds.

The rating agency said that while reviewing the rating of Hypo Tirol’s mortgage covered bonds, it will consider whether overcollateralisation (OC) will be maintained at a level consistent with a Aa1 rating.

Moody’s affirmed the Aa1 rating assigned to issuer’s public sector covered bonds because it does not expect that OC will be maintained at a level consistent with a Aaa rating.