Moody’s has placed on review for downgrade Aa1 rated mortgage covered bonds issued by Finland’s Aktia Real Estate Mortgage Bank because it is reviewing for downgrade the ratings of the issuer’s parent, in part reflecting concerns over the latter’s increased reliance on market funding, particularly covered bonds.

The rating actions were carried out on Friday, with Moody’s noting that the rating review of the covered bonds is not driven by deterioration of the credit quality of the cover pool assets.

Moody’s rates Aktia Bank, the covered bond issuer’s parent, A1 but placed this rating on review for downgrade because it expects the bank’s profitability to continue to weaken and because of concerns over the bank’s increasing reliance on market funding, particularly covered bonds issued through Aktia Real Estate Mortgage Bank.

“Moody’s recognises the importance of access to diversified funding, as demonstrated by Aktia Bank’s long and short term funding programmes and the diversification of its maturity profile,” it said. “However, the rating agency ultimately regards market funding as a less stable funding source compared with deposits.”

It noted that market funding has increased from around 28% of total funding at year-end 2008 to 45% as at September 2011.

Aktia Real Estate Mortgage Bank has covered bonds outstanding under an old Finnish covered bond law and under revised legislation, with both sets rated Aa1 and assigned a Timely Payment Indicator (TPI) of “probable” by Moody’s. Aktia Real Estate Bank is not publicly rated by Moody’s, which means that the TPI leeway cannot be derived from the rating agency’s TPI framework.