Moody’s downgraded five Greek covered bond programmes to junk on Friday, pushing one of two National Bank of Greece programmes below the minimum criteria required by the European Central Bank. However, analysts said that Fitch’s continued rating of the programmes as investment grade eased the impact of the downgrades.

Programmes I and II of NBG were downgraded from Baa3 to Ba3. Since NBG’s programme I was downgraded on 26 May to BB+ by Fitch, these covered bonds are no longer eligible for repo at the ECB.

Only one jumbo off NBG’s programme I is outstanding, an October 2016 issue.

“Whoever is holding that now can’t use it for repo purposes,” said a covered bond analyst.

The issuer is understood to have shifted its funding from programme I to programme II, which retains ECB eligibility by virtue of an investment grade Fitch rating.

And since only one rating must be investment grade for covered bonds to achieve ECB eligibility, Greek banks in general can still access such funding because Fitch continues to rate their covered bonds investment grade.

“The Fitch ratings for the retained covered bonds are still in BBB territory although on Rating Watch Negative,” said Frank Will, RBS senior analyst. “As soon as you see a Fitch downgrade of Greece, then issuer ratings, and as a consequence the Fitch covered bond ratings, come under pressure.”

Another analyst said that covered bonds are the big means through which the Greek banking system funds itself.

“That is pretty much the only way for them to raise funding,” he said, “so if that avenue closes it’s not good.”

Will said that were covered bonds to become ineligible, the ECB may once again change its rules to help the Greeks.

“If that happened – I would assume that the ECB wouldn’t lower it just for one country – but I think they would lower (or even remove) the rating threshold for all covered bonds,” he said.

As well as those of NBG, covered bonds of Alpha Bank AE were downgraded from Baa3 to Ba3, while mortgage covered bonds issued by EFG Eurobank Ergasias, programmes I and II, faced downgrades from Baa3 to Ba3. All of the covered bond ratings remain on review for downgrade.

Moody’s warned that the covered bonds could be further downgraded following the review of the rating agency’s expected loss modelling.

The timely payment indicators (TPIs) for Alpha Bank, EFG, and National Bank of Greece’s programme II are “improbable”. The TPI for National Bank of Greece’s covered bond programme I is “very Improbable”.

The rating actions follow a sovereign downgrade last Wednesday (1 June) from B1 to Caa1. The rating remains on review for possible downgrade. Alpha Bank, Eurobank EFG, and National Bank of Greece were downgraded from Ba3 to B3.

On Friday Fitch downgraded Marfin Popolar Bank’s covered bonds from BBB+ to BBB, keeping them on Rating Watch Negative (RWN). The rating action followed a downgrade of the issuer default rating from BBB to BBB-.

Although Marfin’s covered bond programme is governed by Cypriot law, the cover pool includes Greek residential mortgage loans. Fitch said the RWN was expected to be resolved pending Greece’s sovereign rating review.

“The RWN reflects the increased uncertainty surrounding developments in Greece (the jurisdiction where the assets are domiciled) and the ongoing revision of Fitch’s assumptions for Greek mortgages at the current rating levels,” said the report.