Pandemic mortgage muddle hits covered bond valuation

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By Bill Thornhill
14 May 2020

Mortgage payments deferred under national payment holiday schemes, designed to help homeowners through lockdowns, are adding risk to the covered bond market. Concerns were brought into sharp relief this week when Banco BPM amended programme documentation to include such loans, writes Bill Thornhill.

Banco BPM has changed the way its asset coverage test (ACT) works, and it can now include loans that have been renegotiated. This is problematic because in the past such loans have proved troublesome.

“Renegotiated loans are inherently riskier than performing loans,” said Francesca Falconi, an analyst at ...

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