Norwegian covered bonds resilient to oil exposures, says Moody’s

Mar 18th, 2016

Norwegian covered bonds exposed to oil price-sensitive markets will be able to withstand the effects of persistent low prices thanks to sufficient levels of surplus OC, according to Moody’s, with the rating agency also noting that the relevant programmes should prove resilient to a consequent weakening of the Norwegian economy.

Norway oil platformIn a report published on Tuesday, Moody’s noted that of the 17 Norwegian mortgage covered bonds that it rates, five have a material geographical exposure to the two regions in Norway – Rogaland and Hordaland – with the highest percentages of oil-related employment.

The affected programmes are those of Fana Sparebank Boligkreditt, Sparebanken Vest Boligkreditt, SR-Boligkreditt, DNB NOR Næringskreditt and Bustadkreditt Sogn og Fjordane.

Moody’s said that should oil prices remain persistently low, as the rating agency expects, this may reduce employment levels in, and result in migration away from, these regions. This, it said, would put downward pressure on property values that back cover pool mortgage assets.

However, Moody’s said it expects that affected Norwegian covered bonds will be able to withstand a moderate deterioration in the credit quality of their cover pools, because of the levels of surplus over-collateralisation (OC) in the cover pools.

The rating agency noted that this surplus OC ranges from a maximum of 417%, for DNB NOR Næringskreditt, to a minimum of 5.9%, in the case of SR-Boligkreditt.

Moody’s added that it also believes the relevant covered bonds would prove resilient in the event of a limited weakening of the credit strength of issuers, which may occur if lower oil prices result in a weakening of the broader Norwegian economy.

The rating agency said that the issuers’ current Timely Payment Indicators (TPIs) – which range from Probable to High – indicate that it could lower the CB anchors of all five programmes by several notches without negatively affecting the covered bond ratings, provided there was sufficient collateral in the cover pool.

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