OREANDA-NEWS. Fitch Ratings has updated the Mortgage Liquidity and Refinance Stress Addendum for its covered bonds criteria. It has now incorporated improved liquidity gap and systemic risk assessment for Australian mortgage covered bond programmes. It has also added liquidity gap and systemic risk assessment used for rating covered bonds programmes secured by residential mortgage loans in Singapore and South Korea. This addendum replaces the version published on 20 May 2015.

The liquidity gap and systemic risk assessment for a typical soft-bullet Australian mortgage covered bond programme with a 12 months maturity extension was improved to 'moderate' from 'moderate high'. This assessment considered the continued use of covered bonds and the size of the covered bond market, along with the long-standing securitisation market, which in Fitch's view also enhances the liquidity of mortgages in Australia, (see "Fitch Upgrades Mortgage Liquidity Assessment for Australian Covered Bond Programmes", dated 2 July 2015).

The 'moderate high' assessment assigned to Singapore reflects its fairly large mortgage market but the absence of a residential mortgage-backed securitisation market. South Korea's 'moderate' assessment reflects the size and depth of the mortgage market and the history of mortgage-backed securities and covered bond issuance. These assessments apply to programmes with a liquidity protection period of one year. In cases where the liquidity mechanism is considered weaker, such as for hard bullet covered bonds with a pre-maturity test triggered if the issuer short-term rating falls below 'F1', a higher risk assessment may apply to those mortgage covered bond programmes than outlined in this report.