An S&P Global upgrade of Iceland earlier this month has led to its ratings of the mortgage covered bonds of Íslandsbanki, Landsbankinn and Arion Bank being raised from A to A+ yesterday (Monday).

S&P upgraded the sovereign from A to A+, on stable outlook, on 10 November, citing strong growth and fiscal consolidation.

Under S&P’s methodology, the three banks’ covered bond programmes enjoy two notches of uplift from their long term issuer credit ratings to reach reference rating levels (RRLs) of a-, and are eligible for two further notches of uplift above this because of the rating agency’s jurisdictional assessment of Icelandic mortgage covered bonds as being strong.

The jurisdictional uplift was, however, previously capped at that of the sovereign, but the two available notches now enable the programmes to achieve jurisdiction-supported rating levels (JRLs) of a+.

“We have not assigned collateral-based uplift for these programmes, as we assess that overcollateralisation is currently insufficient to cover the various credit and cash flow risks that we consider in our analysis,” added S&P. “In our continuous surveillance of the programmes, we will monitor any changes in our assessment.”

The consequent A+ ratings of the programmes are now on stable outlook, having previously been on positive outlook.

The outlooks on the BBB long term issuer credit ratings of Íslandsbanki and Landsbankinn were meanwhile revised from stable to positive on 17 November, and Arion’s from negative to stable.

S&P is the only rating agency to rate any of the three Icelandic covered bond programmes.