A continued rise in Spanish non-performing loans could lead Fitch to review its probability of default assumptions for individual borrowers in Spanish RMBS and covered bond transactions, the rating agency said on Friday.

A rise in the national non-performing loan (NPL) ratio for residential mortgages to 6% will “very likely” trigger such a review, said Fitch. It referred to a rise in NPLs recently announced by the Bank of Spain, and said that this will probably continue as banks reclassify some refinanced loans and reduce the support they have provided to structured finance transactions.

“At a national level, the jump in the NPL ratio for residential mortgages to 5.2% from 3.2% a year earlier is particularly significant because the stock of mortgage debt only decreased by 5% over the year,” said Fitch. “This means rising NPLs rather than falling mortgage volumes drove the increase.”

The rating agency said that it believes the increase is partly due to banks reclassifying some refinanced transactions as non-performing after the Bank of Spain required them to re-analyse these. This review is required to be completed by the end of this month and is therefore likely to contribute to a further increase in NPLs, added Fitch.