Fitch: Spanish CVBs' Performance to Improve
Mortgage cover pool composition has shifted towards residential assets, which represented 74.4% of entire cover pool on average as of end-1H15, and seasoning has increased to the six to eight-year range on average. Fitch's lifetime loss rate expectation is 11.1% on average, with residential non-performing loan ratios ranging between 3% and 9% as at end-1H15, broadly in line with the 5.9% of the national average reported by Bank of Spain.
Fitch also says in the report that outstanding volumes of retail mortgage portfolios contracted 4% in 2Q15 in annualised terms. Because the drop in outstanding CvB volumes is larger than that of the cover pool, Fitch-rated mortgage CvBs' average nominal overcollateralisation (OC) ratios have increased to 178.2% at end-June 2015 from 136.7% at end-June 2014.
The substantial OC levels allow for high recovery expectations of more than 91% for CvBs assumed to be in default under a given rating stress scenario, allowing for a two- to three-notch recovery uplift.
Fitch currently rates seven cedulas programmes, six of which are secured by mortgages and one by public sector loans. All Spanish CvB ratings are either on Stable or Positive Rating Outlook, reflecting the Outlook of the corresponding issuer, the Outlook of the sovereign, high levels of OC and Fitch's view on the stabilisation of the Spanish mortgage market.