Polish covered bond market looks stable - Moody's
Photo by Daniel J. Macy / Shutterstock.com
Poland's sovereign rating is A2 (stable), reflecting strong economic resilience and financial stability, Moody's said according to a report by the Warsaw Business Journal.
In recent years, Polish house prices have outpaced the Euro area average, fuelled by increased mortgage affordability and relatively few dwellings per capita. Due to COVID-19 headwinds, house price growth slowed markedly in the third quarter of 2020, before trending up again in the fourth quarter. The fallout from the pandemic will likely exert further downward pressure on prices as government support measures come to an end.
During the last decade, the Polish covered bond market has rapidly increased from around EUR 700 million to over EUR 6 billion, although it remains small in comparison to other countries and as a proportion of the EUR 108 billion domestic residential mortgage market. The credit quality of covered bonds is high, with two programs rated Aa1 (at our country ceiling) and one rated Aa2, and our counterparty risk (CR) assessments for Polish issuers range from A2(cr) to A3(cr). Most cover pool assets are high-quality residential mortgage loans, although commercial loans represent around 30% of one cover pool.
"In our modeling, we assume average cover pool losses of 21%, which is in line with the average for European programs. However, there are material differences in the number of cover pool losses across Polish programs due to variations in the degree of exposure to interest rate and foreign exchange risks and the extent to which these risks are mitigated by hedging arrangements. Polish covered bond ratings are moderately linked to the credit quality of issuers; on average, issuers can be downgraded by almost three notches without triggering a TPI-driven downgrade of covered bonds," the Moody's analysts stated.
SUPPORT THE BUDAPEST BUSINESS JOURNAL
Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.