OREANDA-NEWS. Fitch Ratings has published a peer review rating report for the four Portuguese mortgage covered bond programmes (Obrigacoes Hipotecarias, OH) rated by the agency, including those of Banco Comercial Portugues, S.A. (BCP), Caixa Geral de Depositos, S.A. (CGD), Caixa Economica Montepio Geral (Montepio) and Banco Santander Totta SA (Totta).

Fitch rates the four OH programmes solely on a recovery basis with rating uplifts of one to three notches from the issuers' Long-term Issuer Default Ratings (IDRs) as adjusted by an IDR uplift of 1 assigned to all four Portuguese programmes. The level of recovery uplift is dependent on the overcollateralisation (OC) which the issuers commit to and this level of OC provides more protection than the breakeven OC calculated by Fitch for a given covered bond rating for the Portuguese OH. BCP's and Montepio's OH are rated 'BBB-'/Stable, CGD's 'BBB'/Stable and Totta's 'A-'/Positive.

The IDR uplift of 1 on all four OH programmes reflects covered bonds exemption from bail-in and Fitch's view that resolution rather than liquidation could likely be applied by authorities to preserve the continuity of important banking activities for these issuers, including covered bonds, given their domestic importance and interconnectedness with the Portuguese economy. Bank of Portugal recently decided to classify BCP, CGD, Montepio and Totta, among others, as domestic systemically important banks.

Fitch maintains a Discontinuity Cap (D-Cap) assessment of 0 notches (full discontinuity risk) for all OH programmes, driven by the liquidity gap and systemic risk component. In the agency's view the 12-month maturity extension on the covered bonds is not enough to successfully liquidate the cover pool to meet timely payments on the OH once the cover pool becomes the source of payments. This means that Fitch expects a direct default of the OH if the source of payments switches from the issuer to the cover pool.

The Portuguese residential mortgage cover pools in 2015 had an average 'B' portfolio loss rate of 3.2%, down from 3.7% in 2014, one of the lowest among eurozone peripheral countries and has declined.

The report, entitled "Portuguese Covered Bonds Peer Review" is available at www.fitchratings.com or by clicking on the link above.