Fitch: Soft Bullet Mainstream among Italian OBG
Among Fitch-rated Italian OBG, soft bullet (SB) programmes represents the majority (seven out of nine); the remaining two programmes encompass a conditional pass-through (CPT) liability amortisation profile (UniCredit S. p.A. OBG guaranteed by UniCredit OBG S. r.l. and Banca Monte dei Paschi di Siena SpA programme guaranteed by MPS Covered Bonds S. r.l.).
The different liability amortisation profiles drive the assessment of the liquidity gap and systemic risk for each programme. Fitch assesses as high the discontinuity risk of SB programmes, which benefit from contractual principal maturity extension (12 or 15 months). By contrast CPT programmes have a minimal discontinuity risk assessment. This is because there are no liquidity gaps that need to be bridged via asset sales, in a cover pool enforcement scenario as CPT OBG amortise along with the cover pools.
All OBG programmes are eligible for an IDR uplift as they are exempt from bail-in under Italy's resolution regime. Fitch assigns an IDR uplift of one notch to the programmes issued by Banca Monte dei Paschi di Siena SpA and UniCredit S. p.A. based on the agency's view that the banks are systemically important in the domestic market and interconnected with the Italian economy; Mediobanca Spa's OBG benefit from an IDR uplift of one given that the bank's senior unsecured bonds are in excess of 5% of total adjusted assets.
The average 'B' portfolio loss rate (PLR) for the OBG programmes of 2.7% is the lowest among eurozone peripheral countries. Mixed portfolios, comprising residential mortgages and secured loans to small and medium sized enterprises, show higher 'B' PLR than fully residential cover pools (5% versus 1.6% on average).ning ratings.