Fitch upgraded covered bond programmes of National Bank of Greece, Alpha Bank and Piraeus Bank from B to B+ on Friday and placed them on Rating Watch Positive, with potential for the programmes to be upgraded to BB-.

The rating actions follow an upgrade of Greece’s Issuer Default Rating (IDR) from B- to B, with a positive outlook, and a rise in the country ceiling from B to BB-. Fitch said the upgrade reflected its view that country appears to be on course for general government debt sustainability.

“Fitch believes that general government debt sustainability will improve, underpinned by sustained GDP growth, reduced political risks, a record of general government primary surpluses and additional fiscal measures legislated to take effect through 2020,” said the rating agency.

The maximum achievable rating for Greek covered bonds is as result of the rating actions on the sovereign now BB-. The programmes’ ratings had previously been capped by the country ceiling.

Fitch said that the upgrade primarily reflects the higher country ceiling and the programmes now benefitting from a two notch recovery uplift, whereas the previous B country ceiling constrained the maximum recovery uplift to one notch.

The two notch recovery uplift is also possible because the corresponding B+ stressed credit loss for each of the programmes is below the 25% contractual overcollateralisation maintained by the issuers and considered by Fitch in its analysis.

The Rating Watch Positive reflects the possibility for the programmes to be upgraded to BB-, if the 25% relied upon OC is sufficient to compensate for the corresponding stressed credit loss in a BB- rating scenario, which would enable a three notch recovery uplift.

Fitch said it will resolve the Rating Watch Positive on the programmes upon the publication of new assumptions for Greek residential mortgages up to BB-, and the resolution of the Rating Watch Evolving on the respective issuers’ Viability Ratings.