Covered Bond Asset Encumbrance Stable in 2018

Average weighted average cover pool encumbrance for banking groups that we rate was just below 8% of adjusted assets at end-1H18. Encumbrance has been broadly stable for the past three years, as market-placed issuance had continued in what are traditionally the largest covered bond markets

Fitch Ratings methodology for rating covered bonds

Hélène Heberlein, Managing Director and Head of Covered Bonds, Explains Fitch Ratings methodology for rating covered bonds with Euromoney’s Meet the Market segment.

Open-Ended Bond Funds a Potential Risk to Financial Stability

Open-ended bond funds are a potential risk to global financial stability given their rapid growth and increasing liquidity mismatches and credit risk.

Conditional Pass-Through Need Not Be Riskier Than Other Covered Bonds

Covered bonds with a conditional pass-through (CPT) amortisation profile are not necessarily more risky than those with other liquidity protection mechanisms, Fitch Ratings says. In fact, the pass-through feature eliminates the uncertainty and potential losses from a stressed sale of cover assets. 
 

Covered Bonds Harmonisation

• EU Liquidity Rule Would Benefit Portuguese Covered Bonds

• Proposed Covered Bonds Liquidity Buffer Amendments Lack Clarity

• Global Covered Bonds Recognition under EU Directive Possible, Double Standards Remain

• One Size EU Draft Covered Bond Directive Fits Almost All
• Liquidity Buffer Main Positive in Covered Bond Directive
• Covered Bonds Survey Highlights Focus on Regulation in 2018
• Covered Bond Harmonisation Proposals Miss the Chance to Address FX Risk
• Spanish Covered Bonds Could Gain from Enhanced Liquidity

CVB Ratings Resilient to Sovereign and Bank Rating Movement

Most of the covered bonds rated by Fitch have been issued by highly rated banks and sovereigns with stable ratings, which contributes to the stability of our covered bond ratings. For example German, French and Nordic covered bonds account for almost two-thirds of the covered bond market globally. In addition the programmes we rate in these countries are protected by an average four-notch buffer against a downgrade of the bank's Long-Term Issuer Default Rating (IDR).

Panama's Banco La Hipotecaria's Inaugural Covered Bonds Rated 'BBB'

There is no covered bond framework in Panama, but Fitch believes that the contractual arrangements for the program and local legal framework are effective so that the cover assets are sufficiently ring-fenced from the remaining portion of the issuer's balance sheet. 

Australian CVB Market Expands; Singapore Tightens Residential Property Regulations

We believe the expansion of Australia's covered-bond market and tighter regulations on residential properties in Singapore are positive developments in the Asia-Pacific region, as outlined in the agency's most recent report, APAC Covered Bonds Quarterly - 3Q18. 

Fitch Rates Panama's Banco La Hipotecaria Covered Bond 'BBB(EXP)'

Fitch Ratings has assigned Banco La Hipotecaria, S.A.'s (BLH, BB+/Stable) first contractual mortgage covered bond program an expected rating of 'BBB(EXP)' with a Stable Outlook. Fitch has assumed the first issuance to be up to USD30 million in five-year soft bullet covered bonds with a 12-month principal maturity extension period and three months of interest protection.

2018 Virtual Investor Series – Asia-Pacific Covered Bonds

Claire Heaton speaks with Ben McCarthy about the development and features of the Asia-Pacific covered bond market, types of issuance, credit and structural risks, and potential new markets in the region.

Euribor Deadline Uncertainty for SF, Covered Bonds, Banks

The approaching deadline for Euribor to become compliant with the EU Benchmark Regulation (BMR) is creating significant uncertainty for the euro-denominated floating rate assets and liabilities of structured finance transactions, covered bonds and banks.

2018 Virtual Investor Series – Covered Bonds

Hélène Heberlein discusses recent trends in covered bonds and the potential effect of the upcoming covered bonds regulation on ratings.

Debt Limits Support Hungary, Czech, Slovak Covered Bonds

Debt-to-income (DTI) and debt-service-to-income (DSTI) limits in Hungary, the Czech Republic and Slovakia should support asset quality in these countries' covered bond programmes. The limits provide a further safeguard on top of asset pool eligibility criteria, at a time when mortgage lending volumes and household debt are rising. 

Record High Household Debt Prompts Further Korean Mortgage Regulation

Korean Household debt rising to an all-time high of 97.5% against GDP has prompted further regulation by South Korea's Financial Services Commission (FSC), which has rolled out new lending guidance to the commercial and savings banks on debt-servicing ratio (DSR) measures for residential mortgage loan origination. 

Fitch Reviews Covered Bond Model Frequency in Criteria Update

We have updated our "Covered Bonds Rating Criteria" to include its new approach to model application in the covered bonds rating review process. Also, the agency is regrouping into one new metric, called ALM loss, the non-credit loss components of its calculated breakeven overcollateralisation for the rating.

Smaller Italy Banks May Pool Assets to Tap Covered Market

The Bank of Italy's proposal to loosen the restriction on issuing covered bonds for banks with less than EUR250 million of capital and a total capital ratio of 9% would enable smaller institutions to tap the market. Joint funding models could mitigate concentration risk, but the extent of any credit benefits would depend on the structures used.

Canadian Covered Bonds Bail-In Exemption Limited to DSIBs

Canadian covered bonds are explicitly exempt from bail-in, which Fitch Ratings views as credit positive. Unlike other regimes, Canadian bail-in rules only apply to federal Domestic Systemically Important Banks (D-SIBs). The regulation is silent on the risk of undercollateralisation in a resolution scenario.

Fitch to Review Application of Models in Covered Bond Analysis

Fitch Ratings intends to define conditions for monitoring its covered bonds ratings without updating its asset and cash flow model outputs. The agency is targeting programmes for which it believes changes in its calculation of credit losses and losses from cash flow mismatches in a stress scenario will not result in a rating change. 

Major UK Bank Covered Bonds' Ratings Benefit from Large Buffers

The 'AAA' ratings of covered bonds' issued by major UK banks are resilient to a deterioration in their environment, notably from Brexit. They benefit from a large cushion against a downgrade of the banks' IDRs, low maturity mismatches, significant over-collateralisation buffers and high quality mortgage cover pools.