Royal Bank of Canada has told Moody’s that it will support its covered bonds by adding sufficient collateral to maintain their Aaa rating, with the rating agency on Friday affirming their top rating despite having put the Canadian bank on review for downgrade on Wednesday.

The issuer is rated Aa1 and the review of this rating was initiated as part of a review by Moody’s of 17 banks with global capital markets operations.

The rating agency has said it believes that it is highly likely RBC will increase the amount of committed overcollateralisation in the programme.

RBC’s contractual minimum amount of overcollateralisation is 3% on the programme (corresponding to an asset percentage ceiling of 97%), but RBC may have to increase overcollateralisation to as much as 7% (or an asset percentage of 93%) if the issuer rating falls by two notches to Aa3. RBC management informed Moody’s that the issuer would be willing to lower the asset percentage to as low as 93% if that is necessary to maintain the Aaa rating.

If the bank is downgraded by one notch to Aa2, the current level of overcollateralisation would likely be sufficient to maintain the rating, according to the rating agency.

The fluctuating asset percentage, stated by the issuer in investor reports, is 91.80%, but Moody’s only views overcollateralisation to be committed when the sponsor is legally bound to maintain it under programme documentation, and in its opinion, it cannot be withdrawn in the future under stressful conditions.