OREANDA-NEWS. Fitch Ratings says in a new report that banks' overall cover pool encumbrance has remained broadly stable in the past four years.

Denmark, Germany, Spain and Sweden continued to top the list this year. Only a small number of rated banks have significant cover pool encumbrance. Of the 147 entities in the sample, 10 had cover pool encumbrance above 50% of end-June 2015 adjusted assets, of which only three are above 70%. High asset encumbrance is a reflection of business models, based on covered bond funding.

Total outstanding covered bonds sold rather than retained by banks included in this report decreased 3% in 2014 and 5% in 1H15. Increased issuance is offset by redemptions and some balance sheet deleveraging at previously large issuers. Mortgage lending is picking up in some countries, which could support future issuance. However, we do not expect encumbrance to deviate from current levels.

Encumbered funding appears to be less in focus, following reduced stress, improved debt capital market access for many banks and banks' drive to build-up loss absorbing buffers. EU banks continue to optimise their liability profile to meet the expected higher capital and eligible liability buffers required by regulators, favouring the issuance of subordinated and alternative Tier 1 capital instruments instead.

The report, "Banks' Use of Covered Bonds Funding: 2015 Update", is available at www.fitchratings.com.