OREANDA-NEWS. Fitch Ratings says that amendments to Polish covered bonds law, effective from January 2016, are likely to benefit its discontinuity risk assessment of Polish covered bonds and potentially lead to higher ratings.

An updated discontinuity risk assessment could allow for a maximum of a 10-notch uplift of the covered bonds rating above its rating floor, consisting of the issuer's Long-term Issuer Default Rating (IDR) adjusted by the IDR uplift, and recoveries on the bonds' given default.

The full rating uplift can only be achieved if an asset analysis based on historical performance data is sufficiently robust. Also, large foreign currency (FX) mismatches between cover assets and covered bonds may limit the programme's rating. For public sector covered bonds concentrated within a single country, the covered bonds' rating would generally be capped at the rating of the sovereign itself despite the introduction of a pass-through mechanism and accompanying liquidity improvements.

Fitch will seek legal opinions on the amended law in the upcoming weeks. A detailed analysis of the framework, the asset coverage and liquidity tests and an updated discontinuity risk assessment will be published by end-2015.