Mortgage backed covered bonds issued by Hungary’s OTP Jelzálogbank and FHB Mortgage Bank were placed on review for downgrade by Moody’s yesterday (Wednesday), with zero leeway for the rating of OTP’s issuance under the rating agency’s TPI framework.

The review was prompted by a review of the respective issuer ratings, which was in turn driven by a government law giving mortgage borrowers the right to repay foreign currency mortgages at discounted exchange rates.

Moody’s rates the covered bonds issued by OTP Jelzálogbank Baa1, and those issued by FHB Mortgage Bank Baa3, with Timely Payment Indicators (TPIs) of “very improbable”.

The TPI restricts FHB’s covered bond ratings to Baa3, with a leeway of two notches.

OTP’s covered bonds are already rated below the A3 rating that represents the ceiling under Moody’s TPI framework, and have zero TPI leeway – a downgrade of the issuer rating will therefore automatically lead to a cut of the covered bond rating all other things being equal.