Moody’s has upgraded five Portuguese banks’ mortgage covered bond programmes by one notch, following an upgrade of the sovereign’s rating and the country ceiling, alongside two improved CR assessments, a lowering of refinancing margins, and an improvement in an issuer’s TPI.

Moody’s upgraded Portugal from Baa3 to Baa2 on Friday, citing an improvement to the country’s longer term growth prospects thanks to NextGen EU funds and structural reforms, as well as an expectation that its debt burden will decline on the back of such growth and more effective fiscal policymaking. Concurrently, Portugal’s country ceilings were raised from Aa3 to Aa2.

The rating agency yesterday (Tuesday) upgraded from Aa3 to Aa2 the mortgage covered bonds (obrigações hipotecárias, OH) of Banco BPI, Banco Comercial Português (Millennium bcp), Banco Santander Totta and Caixa Geral de Depósitos (CGD), and the mortgage covered bonds of Caixa Económica Montepio Geral from A1 to Aa3.

The Counterparty Risk (CR) assessments of Banco BPI and CGD were yesterday lifted one notch, from Baa2(cr) to Baa1(cr), amid a variety of issuer upgrades across Portuguese banks.

Moody’s also lowered its refinancing margins for all Portuguese covered bonds, and raised the timely payment indicator (TPI) of CGD’s programme from “high” to “very-high”. It said that as well as the improvement in the Portuguese economy, the adjustments reflected “the significant reduction of covered bond market spreads in Portugal over the last years, and the near term implementation of the EU directive on covered bonds, which will reinforce strengths of the Portuguese covered bond law and the systemic importance of Portuguese covered bonds”.

Banco BPI public sector covered bonds, rated A1, were put on review for upgrade, reflecting a potential upgrade if the issuer maintains overcollateralisation (OC) consistent with a higher rating, Moody’s said. During the review, it will assess the willingness and capacity of the issuer to maintain sufficient OC on a sustained basis. The highest rating now achievable is Aa2, the country ceiling.