= Ultimate Parent


Covered Bonds

Global Home > Covered Bonds

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.

European Structured Finance: Risks to Watch in a Post QE World

Fitch Ratings is pleased to invite you to its European Structured Finance Conference on Thursday 4 October 2018 in London.

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.

'B' Portfolio Loss Rates for Covered Bonds

‘B’ losses are higher for cover pools securing covered bonds issued by low-rated banks. The average ‘B’ PLR on cover pools of investment-grade issuers is 0.9% compared with 5.2% for the cover pools of non-investment-grade issuers.

rating action

Fitch Rates ING Bank (Australia) Limited's Inaugural Mortgage Covered Bonds Final 'AAA'

The first issuance under the programme is AUD1 billion split over Series 1 and Series 2 issuances. Series 1 is a three-year AUD400 million floating rate bond while Series 2 is a five-year AUD600 million fixed-rate bond. 

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.

Surveillance Snapshot

See the latest quarterly information for Fitch-rated covered bond programmes globally.

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. 

LTI Rules and Rates to Drive Scandinavian House Prices

A regulatory shift towards loan-to-income (LTI) restrictions has contributed to the recent adjustment in Norwegian and Swedish house prices. Other factors that will influence the market include supply-demand fundamentals and income growth, but most importantly the eventual pace of interest rate rises.

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.

APAC Covered Bonds' Long Wait for EU Directive Decision; Uncertainty Lingers

Covered bonds issued out of APAC have not benefited from any specific risk-weighting for investing banks based in Europe. We therefore feel that a change in applicable risk-weights has the potential to whet EU-based investor appetite for well-established APAC covered bond markets.

Hungary's Mortgage Bond Purchases to Boost Covered Bonds

We expect National Bank of Hungary's mortgage bond purchase programme to support the development of the domestic covered bond market and improve match-funding of mortgage assets on the banks' balance sheet. The newly set up programme enables the central bank to conduct purchases on the primary and the secondary market, up to half of the nominal value of each Hungarian bank's aggregate holdings of forint-denominated mortgage bonds.

Rating Action

Fitch Upgrades One OBG Programme; Affirms Three

Fitch Ratings has upgraded Banco di Desio e della Brianza's (Desio, BBB-/Stable/F3) Italian mortgage covered bonds (Obbligazioni Bancarie Garantite, OBG) to 'AA' from 'AA-' and removed them from Rating Watch Positive. 

rating action

CBA's HKD6.1 Billion Covered Bonds Rated 'AAA'; Outlook Stable

This brings the total outstanding issuance of covered bonds to AUD24.6 billion. Series 68 is a floating-rate bond due in July 2021 and benefits from a 12-month extendable maturity.

Bail-In Exemption Supports Canadian Covered Bond Ratings

Canada's Bank Recapitalization (Bail-in) Regime increases the protection for covered bondholders against a hypothetical issuer default. It will lead to larger buffer against a potential issuer downgrade for Fitch-rated covered bond programs of federally Domestic Systemically Important Banks (D-SIB) in Canada. 

rating action

Skipton Building Society's Soft-Bullet Covered Bond Rated 'AAA(EXP)'

The first issue is assumed to be GBP400 million with a five-year maturity and a one year soft-bullet feature for this analysis. The covered bonds are issued under the UK regulated covered bonds framework.

rating action

Virgin Money's Soft-Bullet Covered Bond Rated 'AAA(EXP)'

The covered bonds are issued under the UK regulated covered bonds framework. They constitute senior unsecured obligations of VM, guaranteed by Eagle Place Covered Bonds LLP, a special purpose vehicle that owns the mortgage cover assets securing the guarantee.

Norwegian Covered Bonds' Bail-in Exemption Increases Rating Cushion

The transposition of the EU Bank Recovery and Resolution Directive into Norwegian law on 23 March 2018 increases the protection of covered bondholders against a potential issuer default.

Substantial Uplifts Support Rating Stability of Mid-Sized UK Bank CVBs

All five UK mortgage covered bonds programmes issued by medium-sized banks benefit from significant uplift of nine to 10 notches above the issuing bank's long-term IDR. 

Credit Hotspot: Conditional Pass-Through Mortgage Covered Bonds

Latest: Bank of Cyprus Covered Bonds Upgraded to 'BBB' on New Data

Ring Fencing Unlikely to Affect Barclays' Covered Bonds

We expects no impact on the 'AAA'/Stable rating of Barclays Bank PLC's mortgage covered bond programme once it is transferred to the ring-fenced entity, Barclays Bank UK PLC. 

Liquidity Buffer Main Positive in Covered Bond Directive

Mandatory liquidity protection in the draft EU covered bonds directive, released yesterday by the European Commission, would be positive for investors. The impact, including any potential rating benefit, will vary depending on existing liquidity provisions in different jurisdictions. Related: EU Covered Bond Liquidity Buffer Could Be Rating Positive

rating action

Upgrade: Four Greek Covered Bonds Programmes; Places on RWP

The upgrade primarily reflects the higher Country Ceiling and the programmes benefitting from a two-notch recovery uplift. The previous 'B' Country Ceiling constrained the maximum recovery uplift to only one notch. 

Stable APAC Covered Bond Outlook Resistant to Housing Risk

Housing market developments in Asia-Pacific are unlikely to affect Fitch Ratings' stable covered bond outlook, as most ratings within the sector have a large buffer against a downgrade of the issuer's Long-Term Issuer Default Rating (IDR). 

Covered Bond Market Risks Complacency over Low OC Levels

Participants in the covered bond market may be overlooking the role of overcollateralisation (OC) in providing dependable protection for investors. There could be too much reliance on issuers maintaining collateral levels in order for their covered bonds to remain a low risk. We see evidence of this in the very low levels of OC that Moody's deems compatible with its highest covered bond rating.

Covered Bond Asset Encumbrance Continues to Fall

Weighted-average cover pool encumbrance for Fitch-rated banking groups was just below 8% of adjusted assets at end-1H17. The slight fall from around 8% a year earlier, means that encumbrance has declined steadily over the last five years, having stood above 9% at end-2012. Banks' Use of Covered Bonds: 2017 Update | Excel File

Covered Bonds Survey Highlights Focus on Regulation in 2018

Issuer location remains the most important factor differentiating covered bond prices. Respondents in a Fitch Ratings' survey ranked the issuer's country at the top of pricing drivers, followed by the covered bond rating. 

Southern Europe Taps Covered Bond Funding for the Long Run

Italian, Portuguese and Greek banks are taking advantage of the positive market momentum and investors' hunt for yields to place longer-dated covered bonds. Issuers are either pre-funding future needs, locking-in cheaper funding for the long run, or building up their yield curves after a market shutdown, mainly in Greece. 

2018 outlook

Covered Bonds' Significant Buffer Underpins Stable Outlook

Most covered bond ratings have a significant buffer before a downgrade of the bank's Long-Term Issuer Default Ratings (IDRs) could trigger a downgrade of the bonds. However, the ratings for some covered bond programmes remain closely linked to the bank's Long-Term IDR. More Global 2018 Credit Outlooks

Covered Bonds Files in Line with ECB Guidelines

We have introduced enhanced periodic surveillance workbooks for covered bonds programmes and multi-issuer of cedulas hipotecarias transactions. They are designed to gather in one document the list of information specified by the European Central Bank in its guidelines on the implementation of the Eurosystem monetary policy framework (ECB/2016/31). 

Asia-Pacific Safest Region for Cover Pool Credit

Asia-Pacific is the safest region for mortgage cover pools. The average 'B' PLR for Fitch-rated Asia-Pacific covered bond programmes was 0.4%, half the average 'B' PLR for Fitch-rated non-peripheral eurozone covered bond programmes.

rating action

Santander Consumer Bank AG's Mortgage Pfandbriefe Rated 'AAA(EXP)', Outlook Stable

Compared with our initial analysis the breakeven OC has decreased by 6.5%. The initial pool consisted mostly of newly-originated loans, but the issuer has added a significant share of more mature assets, reflected in the current portfolio seasoning of 4.4 years (previously 1.9 years), leading to a more balanced asset liability profile.

Sparkasse Hannover's Mortgage Pfandbriefe Rated 'AAA'

We have assigned Sparkasse Hannover's (SkH; A+/Stable/F1+) mortgage Pfandbriefe a 'AAA' rating. The Outlook is Stable.

SF and CVB Country Risk Rating Criteria Updated

Structured Finance and Covered Bonds Country Risk Rating Criteria 

rating action

Desio's Soft Bullet Covered Bonds Rated 'AA-'

The change in the 'AA-' breakeven AP is driven by the reduced cost of liabilities, compared with the one previously modelled, and the revised credit loss of 5.1% in a 'A' tested rating on a probability of default (PD) basis (from 5.3% previously). 

Covered Bonds Disclosure Not Yet Fully Compliant with ECB Rules

Among programmes for which end-2Q17 data was published on time, the content was often not fully matching the list required by the ECB. we have calculated that 17% of all required items for all 102 programmes with data published on time was missing. 

4 Greek CVB Programmes Upgraded on Sovereign Review

All Greek covered bonds programmes benefit from a one-notch recovery uplift from the 'B-' rating floor represented by the 'ccc' Viability Rating of each bank as adjusted by the IDR uplift of two notches. 


Hélène M. Heberlein


Hélène M. Heberlein

Analytical Sector Head & EMEA

+33 1 44 29 9140

Beatrice Mezza


Beatrice Mezza


+44 203 530 1273

Claire Heaton


Claire Heaton


+61 2 8256 0361

Suzanne Mistretta

North America

Suzanne Mistretta


+1 212 908 0639

Andrew Smitiuch


Andrew Smitiuch


+ 1 416 703 4824

Gregory Kabance


Gregory Kabance


+1 312 368 2052

Samuel Fox


Samuel Fox


+1 312 606 2307