Fitch Ratings : Covered bonds to promote housing finance

Fitch Ratings believes that introducing covered bonds to the Moroccan market would  contribute to the «growth of retail mortgage lending», reports Reuters.

The institution which is one of the «Big Three credit rating agencies», believes that covered bonds could be a reliable source of funding for banks as «deposits provide about 70% of banks' funding. Retail mortgage loans by banks totalled MAD 188 billion (USD 18 billion) at end-2016, with growth running at about 5% a year, reflecting strong demand. Deposit growth was 6% in 2016». 

The agency predicts that covered «bonds would lessen the maturity mismatches between banks' assets and liabilities, reducing liquidity risk - a credit positive. Retail mortgages loans have maturities of 15 to 25 years but most deposits are contractually short-term, albeit with a high degree of stability».

For the record, covered bonds are considered as safer investments than most others and benefit from a generally high rating by agencies. This is due to the fact that these bonds are secured by collateral which can be claimed in case of issuer default on the bond and are therefore considered as an additional guarantee.