Moody's: Stable credit quality of Australian and New Zealand covered bonds in Q1 2015

Moody's Investors Service says that Australian and New Zealand covered bond programmes' performance remained stable during Q1 2015.

The steady performance of the covered bonds during the first quarter of 2015 was supported by the stable Aaa rating of the Australian and New Zealand sovereigns, the stable financial profiles of the issuers and the stable credit quality of the cover pool assets.

All Australian issuers are rated between A1 and Aa2 with a stable outlook, while New Zealand issuers are all rated Aa3 with a stable outlook.

In Australia, the stable credit quality of the cover pool assets was reflected in an improved average collateral score of 7.2% in Q1 2015 compared to 7.8% in Q4 2014. The weighted average current loan-to-value ratios of the residential mortgage loans in the cover pools ranged between 57.2% and 66.8%.

In New Zealand, the average collateral score declined to 6.6% in Q1 2015 compared to 6.8% in Q4 2014. The weighted average current loan-to-value ratios of the residential mortgage loans in the cover pools ranged between 45.2% and 56.7%.

In Australia, the programmes' average minimum over-collateralization (OC) commensurate with Aaa decreased to 7.9% in Q1 2015 from 8.7% in Q4 2014. Committed OC levels remained unchanged from Q4 2014 at 13.8% and higher than necessary to maintain their current ratings, with a simple average buffer of 5.9 percentage points, compared to a buffer of 5.0 percentage points during Q4 2014.

In New Zealand, the average minimum over-collateralization (OC) commensurate with Aaa decreased to 15.1% in Q1 2015 from 15.3% in Q4 2014, while committed OC levels increased to 19.7% in Q1 2015 from 18.3% in Q4 2014. The simple average buffer increased to 4.5 percentage points in Q1 2015 from 3.0 percentage points during Q4 2014.

Australian covered bond issuance increased to AUD84.6 billion in Q1 2015 from AUD80.9 billion in Q4 2014, while New Zealand covered bond issuance increased to NZD15.3 billion from NZD14.4 billion in Q4 2014.

We expect the credit quality of all Australian and New Zealand covered bond programs to remain stable throughout 2015, backed by the strong financial standing of the issuers and sovereigns, and the stable quality of the mortgage collateral despite higher risks for newer collateral in Australia due to the current historically low interest rate environment.