Moody’s upgraded seven Portuguese covered bond programmes from six issuers yesterday (Wednesday), with an upgrade of the sovereign to Baa3 on Friday leading to a higher country ceiling of Aa3, while other credit positives for the banks’ programmes were cited by the rating agency.

It upgraded Portugal from Ba1 to Baa3 on Friday, resulting in the local currency country ceiling rising from A1 to Aa3.

Banco BPI, Banco Santander Totta and Banco de Investimento Imobiliario mortgage covered bond were then yesterday upgraded from A1 to Aa3, Banco Comercial Portugues (BCP) and Caixa Geral de Depositos (CGD) mortgage covered bonds from A2 to Aa3, Banco BPI public sector covered bonds from A2 to A1, and Novo Banco mortgage covered bonds from Baa1 to A3 on review for upgrade.

Banco Santander Totta, Banco BPI, BCP and CGD also enjoyed upgrades to their Counterparty Risk (CR) Assessments on Tuesday when the banks were upgraded, with Novo Banco being put on review for upgrade.

The programmes now rated Aa3 are constrained at that level by the country ceiling.

Moody’s said the current level of committed overcollateralisation (OC) for Banco BPI’s public sector covered bonds, 7%, is not sufficient to reach a Aa3 rating but restricts it at A1.

The rating of Novo Banco’s programme is now constrained by the new TPI under Moody’s methodology, it said. The covered bond rating  is under review for upgrade in parallel with Novo Banco’s CR Assessment.

Moody’s also raised its timely payment indicator (TPI) for Portuguese public sector covered bond programmes to “probable” and the TPI for programmes with pass-through mechanisms or long maturity extensions to “high”.

“The raising of the TPIs is underpinned by the combination of different factors that have lowered the refinancing risk of the Portuguese covered bonds,” said Moody’s, “including (1) the improvement of the Portuguese economy as reflected in the upgrade of the Portugal’s issuer and bond ratings to Baa3 from Ba1, and (2) stronger market liquidity, reflecting more favourable operating conditions for Portuguese banks.”