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Link to ���������ֳ�' Report(s): Covered Bonds Surveillance Snapshot

���������ֳ�-Milan/London-30 October 2019: Close to half of the recently assigned elevated Environmental, Social and Governance relevance scores (ESG.RS) for covered bonds are likely to fall in the next couple of years, ���������ֳ� says. We expect regulatory developments to prompt this movement.

Ten of the elevated scores relate to seven Spanish and three Portuguese covered bond programmes, which lack liquidity protection mechanisms for timely payment of covered bonds in the event of an issuer default. At present, this directly constrains the covered bond ratings. We view liquidity to be the main driver of the smooth transition from the issuer to the cover pool as the source of interest and principal payments.

Once the EU Covered Bond Directive is transposed into the relevant legislation, the mandatory 180-day liquidity provision is expected to be included into both the Spanish and Portuguese frameworks. Depending on the way this is implemented, enhanced liquidity would make these programmes eligible for greater uplift, potentially achieving higher rating levels provided that overcollateralisation (OC) is sufficient to support that higher rating. The current ESG.RS of 5 could then move to our baseline score of 3 for "Transaction and Collateral Structure" under Governance.

Of 105 covered bond programmes (excluding national scale ratings and guaranteed programmes) and 14 Multi-Issuer Cedulas Hipotecarias (MICH) transactions currently rated by ���������ֳ�, only 19% received at least one elevated score of 4 or 5. Payment continuity risk either relates to "Transaction and Collateral Structure" or to "Transaction and Operational Risk" under Governance and accounts for around 60% of the elevated scores. A further 20% of the elevated scores are assigned to programmes rated on a limited uplift basis above their issuer's rating, mostly due to the lack of information that prevents us from performing a full rating analysis. Also worth noting is that there are two positive elevated scores for a Dutch and a Panamanian programme, the cover pools of which include loans benefitting from government-backed housing schemes that have demonstrated limited loss rates over the years.

���������ֳ�'s 3Q19 Covered Bond Surveillance Snapshot and the accompanying excel file for the first time include information on ESG.RS assigned to ���������ֳ�-rated covered bond programmes and MICH transactions. The snapshot is a graphical summary of our global covered bond coverage, including aggregate statistics on ratings and trends, on covered bonds' uplifts above a bank's issuer default rating, as well as information on OC levels, among others. More details on individual programmes and MICH can be found in the excel file.

Both files can be accessed through the links in this commentary and are published on .

Contact:

Alessandro Bosello
Senior Analyst
+39 02 879 087 278
���������ֳ� Italia S.P.A.
Via Morigi, 6
20123 Milan

Helene M. Heberlein
Managing Director
+33 1 44 29 91 40

Media Relations: Athos Larkou, London, Tel: +44 20 3530 1549, Email: athos.larkou@thefitchgroup.com

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