Fitch: No Impact from Legislative Changes on Dutch Covered Bonds Analysis

Fitch Ratings says recent Dutch legislative amendments are not expected to directly affect the agency's assessment on the discontinuity risk of legislative covered bonds programmes under this jurisdiction.

The recent amendments introduce a mandatory liquidity reserve, a 5% minimum overcollateralisation (OC) and increased enforcement powers of the Dutch Central Bank. Because contractual mechanisms embedded in Dutch covered bonds already provide protection beyond the legislative requirements in areas such as liquidity risk, asset segregation and alternative management of covered bonds, Fitch does not see any impact of these amendments on its analysis of Dutch covered bond programmes. 

Under Fitch's Discontinuity-Caps (D-Caps), the Liquidity Gap and Systemic Risk component remains the driving component for Dutch covered bonds when the new requirements are incorporated into regulated programmes this year. A moderate risk assessment applies to this component for soft and hard-bullet programmes based on the programmes' 12-month extension period or pre-maturity test. The six-month mandatory liquidity reserve will provide a stronger backstop, but will not lead to a better assessment for this component. 

The 5% minimum OC requirement again provides a stronger backstop to programmes, but is rating-neutral, as Fitch gives credit to issuers' already higher public OC commitments contained in investor reports. 

Fitch's discontinuity risk assessment for Dutch covered bonds focuses on: (i) ring-fencing of the cover pool assets, (ii) liquidity protection to meet timely principal and interest payments on the covered bonds, (iii) regulatory oversight of the Dutch Central Bank, (iv) cover pool management and servicing, and (v) counterparty risk analysis of the derivative providers.