Reuters logo
Fitch: 'B' Losses Exceed EBA's OC Proposal in 10% of Cover Pools
September 5, 2017 / 8:18 AM / 3 months ago

Fitch: 'B' Losses Exceed EBA's OC Proposal in 10% of Cover Pools

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: 'B' Portfolio Loss Rates for Covered Bonds here PARIS/LONDON, September 05 (Fitch) Expected losses in a mild 'B' stress scenario would not be covered by the minimum 5% overcollateralisation (OC) proposed by the European Banking Authority (EBA) in 10% of covered bond programmes included in Fitch Ratings' latest annual cover pool loss rate study. Ten of the 98 programmes in our sample have 'B' portfolio loss rates (PLRs) higher than 4.76%. This loss rate would reduce collateralisation to 100% from 105%, which is the minimum level the EBA has suggested in its recommendations for harmonising European covered bond frameworks. The 'B' PLR for the 10 cover pools, which back programmes from issuers in Cyprus, Greece and Spain, range from 6.8% to 14.3%. This compares with an average of 2%, unchanged since last year. Average 'B' PLRs for the Portuguese (3.5%) and Polish (2.9%) pools analysed in our report are also above the average for the sample as a whole. 'B' PLRs are a measure of credit risk in cover pools over the lifetime of the cover assets under our mild 'B' rating stresses. The high PLRs for programmes in Cyprus, Greece and Spain reflect both the impact of the sovereign debt and financial crises on those peripheral eurozone economies and the cover pool composition. Notably, Spanish cedulas hipotecarias are secured against an issuer's entire mortgage book, including riskier SME loans and loans to real-estate developers. Fitch's breakeven OC for a given rating is generally higher than 5%. Only eight programmes have a breakeven OC for their rating of 5% or less, most of which are rated not far above their issuer rating. Fitch's average breakeven OC is 12.3% for its 'AAA'-rated programmes. This is because OC provides protection for other sources of risk than the cover pool's loss rate, such as maturity and interest-rate mismatches between the cover pool and the covered bonds. Assumed credit losses for the cover pool represent almost half of the breakeven OC for the rating in cases where Fitch tests OC for timely payment of the covered bonds in addition to recovery given default. In this year's 'B' Portfolio Loss Rates report, Fitch also compared the 'B' PLR of residential mortgage pools securing covered bonds with those backing RMBS. While loan-to-value restrictions and a smaller proportion of riskier loans mean that credit quality in Dutch and UK cover pools is higher than in RMBS of the same issuer, this is not the case everywhere. In Belgium, Italy and Portugal, loans backing RMBS have on average lower 'B' PLRs than those in cover pools of the same issuers, due to higher seasoning. In Australia, RMBS have a lower 'B' PLR, due to a larger share of loans with lenders' mortgage insurance. For more details, see "2017 'B' Portfolio Loss Rates for Covered Bonds," published today and available at www.fitchratings.com or by clicking on the link above. Contact: Barbara M. Burdzy Director, Covered Bonds +44 20 3530 1820 Fitch Ratings Ltd 30 North Colonnade London E14 5GN Anne-France Chane Analyst, Covered Bonds +44 20 3530 1491 Mark Brown Senior Analyst, Fitch Wire +44 20 3530 1588 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Related Research APAC Covered Bonds Quarterly - 2Q15 here Covered Bonds Surveillance Snapshot here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below