DBRS has reclassified Italy as being a jurisdiction in which covered bonds are systemically important, now deeming Italy’s track record in issuance to be well established, prompting an upgrade today (Thursday) of a Banca Carige OBG programme to A (low).

The rating agency on Friday updated its list of jurisdictions where covered bonds are a systemically important financing instrument, following a review in which it considered the volume of outstanding bonds, issuance levels and legal frameworks of each country.

Already on the rating agency’s list of jurisdictions where covered bonds are systemically important were Denmark, Germany, Ireland, France, Spain and Sweden.

The rating agency concluded that Italy deserves its place on the list given the track record of the Italian obbligazioni bancarie garantite (OBG) product, despite some relative weaknesses in the Italian framework.

DBRS said that in Italy mortgage covered bonds have since 2012 financed a particularly high proportion of lending for home purchase and are a sizeable and growing proportion of monetary and financial institutions’ outstanding long term debt securities.

“Though covered bonds still represent a limited but stable proportion of the country’s GDP, Italy’s track record in covered bond issuance is now well established, in DBRS’s view,” it said.

“Notwithstanding Italy’s legislation being somewhat less prescriptive than other European jurisdictions, especially regarding the appointment of an asset monitor, reporting and related responsibilities, as well as the asset and liability techniques the issuers are obliged to carry out, the established track record leads DBRS to believe covered bonds have become a systemic funding tool in this jurisdiction.”

Italy is one of the four countries in which DBRS rates legislative covered bonds, alongside Spain, Portugal and Ireland.

DBRS today (Thursday) published the findings of an impact assessment on Italy’s reclassification, concluding that it has a “very limited” impact on the outstanding ratings of Italian covered bonds.

The only resulting upgrade was to covered bonds issued off a EUR5bn conditional pass-through (CPT) Banca Carige programme (OBG2), from BBB (high) to A (low), reflecting that the programme’s covered bond attachment point (CBAP) is now one notch higher upon the reassessment of Italy.

The reassessment has also resulted in changes to its ratings analyses for two other Italian programmes, with the CBAP of a soft bullet Banca Carige programme (OBG1) also revised one notch higher and the LSF assessment of a UBI Banca programme revised from “modest” to “average”, but has no impact on the ratings of other programmes.