Moody’s upgraded two OBG programmes of Banca Carige by one notch apiece yesterday (Monday), to A3 and Baa2, respectively, reversing cuts made in March, having concluded that government support for the bank – should it be required – has become more probable after recent Italian bail-outs.

Banca Carige has embarked on a restructuring plan that includes measures to shed non-performing loans, as requested by the European Central Bank. Citing challenges faced by the Italian bank, Moody’s in March downgraded its issuer rating and Counterparty Risk (CR) assessment, resulting in downgrades to its “commercial” mortgage OBG programme, from Baa2 to Baa3, and its CPT mortgage programme, from A3 to Baa1.

However, on Friday, Moody’s upgraded Banca Carige’s deposit rating from Caa1 to B3, affirmed its issuer rating at Caa2, and upgraded its Counterparty Risk (CR) assessment from Caa1 to B3.

The upgrade reflects the rating agency’s view that there is now a “moderate likelihood” of government support for Carige’s deposits and senior unsecured debt, based upon recent bail-outs of compatriots Banca Popolare di Vicenza, Veneto Banca and Banca Monte dei Paschi di Siena.

“While Moody’s remains doubtful that such bail-outs will become the norm, these actions suggest that the Italian government would face fewer constraints to providing support to Carige, which bears many similarities to Veneto Banca in terms of its credit metrics and size,” it said. “Moody’s thus believes that there is now a higher probability of the government applying a comparable framework to Carige if the bank proves unable to carry out its restructuring plan.”

The rating agency said that should this occur, the Italian government’s Eu20bn Atlante fund would still have capacity to support Carige once the funds required by the other three banks are deducted, noting that Carige’s restructuring plan aims to raise around Eu700m.

Banca Carige has three obbligazioni bancarie garantite (OBG) programmes: a “residential” programme that was the first programme it set up and from which it has issued benchmarks; a “commercial” programme that is understood to have been used for repo purposes; and a conditional pass-through “residential” programme set up in December.

Following the upgrade to the bank’s CR assessment, Moody’s upgraded the CPT programme from Baa1 to A3 and the commercial mortgage OBG programme from Baa3 to Baa2. It affirmed the residential programme at Ba1.

Moody’s Timely Payment Indicator (TPI) framework constrains the ratings at their current levels. The residential programme has a TPI of “probable”, the commercial programme “probable high”, and the CPT programme “very high”.

Carige’s issuer and deposit ratings from Moody’s remain on developing outlook.