2018fact book - emf-ecbc · 2018-12-06 · 3 this 13th edition of the ecbc european covered bond...
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EUROPEAN COVERED BONDFACT BOOK 2018 edition ECBC: EUROPEAN COVERED BOND FACT BOOK 2018
Fact
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2018
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28TH ECBC PLENARY MEETING
12 SEPTEMBER 2018MUNICH, GERMANY
In collaboration with
Supported by
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SAVE THE DATE
In collaboration with
29TH ECBC PLENARY MEETING
24 APRIL 2019 RIGA, LATVIA
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This 13th edition of the ECBC European Covered Bond Fact Book builds on the success of previous editions, as the benchmark and the most comprehensive source of information on the asset class. Chapter I presents an analysis of eleven key themes of the year, offering an overview of the Industry’s views on these.
Chapter II provides a detailed explanation of covered bond fundamentals, including reviews of some of the current European regulatory changes that have had/are bound to have a direct, significant impact on covered bonds, mainly the Capital Requirements Directive and Regulation (CRD IV and CRR), the Liquidity Coverage Ratio, Solvency II, bail-in mechanisms (MREL AND TLAC) and covered bonds protection under the BRRD (Bank Recovery and Resolution Directive). This chapter also includes articles outlining the repo treatment of covered bonds by central banks, investigating the relationship between covered bonds and other asset classes such as senior unsecured and government bonds, and describing the USD and GBP denominated covered bond market.
Chapter III presents an overview of the legislation and markets in 39 countries. Chapter IV sets out the rating agencies’ covered bond methodologies and, finally, Chapter V provides a description of trends in the covered bond market as well as a complete set of covered bond statistics.
We welcome the broad range of views expressed in this latest edition of the Fact Book and would like to extend our appreciation to the Chairmen of the ECBC “Fact Book” and “Statistics & Data” Working Groups, Mr Wolfgang Kälberer and Mr Florian Eichert respectively, as well as to all Fact Book contributors, whose efforts have once again, produced an outstanding edition of the ECBC Fact Book.
Contact Details
Luca BertalotSecretary General [email protected]
Jennifer JohnsonHead of Legal & Economic [email protected]
Chrysanthi VazitariCommunication [email protected]
Daniele WestigEconomic [email protected]
Jasmin Abdel FattahCommunication [email protected]
EUROPEAN MORTGAGE FEDERATION – EUROPEAN COVERED BOND COUNCIL (EMF-ECBC)Rue de la Science 14 A, 2nd FloorB-1040 Brussels, BelgiumTel: +32 2 285 40 30
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LIST OF EDITORS
Wolfgang KälbererChairman of the ECBC Fact Book Working GroupHead of Brussels OfficeASSOCIATION OF GERMAN PFANDBRIEF BANKS – [email protected]
Luca BertalotSecretary GeneralEUROPEAN COVERED BOND [email protected]
Chrysanthi VazitariCommunication OfficerEUROPEAN COVERED BOND [email protected]
Daniele WestigEconomic AdviserEUROPEAN COVERED BOND [email protected]
Jennifer JohnsonHead of Legal & Economic AffairsEUROPEAN COVERED BOND [email protected]
DISCLAIMER
This publication has been prepared for information purposes only. It does not constitute an offer, advice or a solicitation to buy covered bonds or any other security and does not purport to be all-inclusive or to present all the information an investor may require. The contributions contained herein have been obtained from sources believed to be reliable but have not been verified by an internal or independent supervisor and no guarantee, representation of warranty, explicit or implied, are made by the European Mortgage Federation-European Covered Bond Council as to their accuracy, completeness or correctness. Readers are advised to satisfy themselves before making any investment and are highly recommended to complete their information by examining the local regulation applying to each covered bond issuer and the terms of each prospectus or legal documentation provided by the issuer relating to the issue of covered bonds.
Neither the European Mortgage Federation-European Covered Bond Council nor its members accept any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents. This docu-ment is for the use of intended recipients only and the contents may not be reproduced, redistributed, or copied in whole or in part for any purpose without European Mortgage Federation-European Covered Bond Council’s explicit prior written consent. By receiving this document, the reader agrees to the conditions stipulated in this disclaimer.
© Copyright 2018 European Mortgage Federation-European Covered Bond Council. All rights reserved.
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TABLE OF CONTENTS
LIST OF CONTRIBUTORS 13
FOREWORD 23
Foreword ..................................................................................................................................... 23By Niek Allon, ECBC Chairman and Luca Bertalot, EMF-ECBC Secretary General
About the ECBC ........................................................................................................................... 27
ECBC Members ............................................................................................................................ 29
Covered Bond Label ..................................................................................................................... 31
CHAPTER 1 - KEY THEMES OF THE YEAR 37
1.1 Covered Bond Harmonisation: A Milestone Reached ..................................................................... 39By Joost Beaumont, ABN AMRO N.V.
1.2 Covered Bond Purchase Programme 3: Preparing for the Final ..................................................... 44By Matthias Melms, NordLB, Franz Rudolf, UniCredit and Maureen Schuller, ING Bank
1.3 Liquidity and Trading Volume in the EU Covered Bond Markets ..................................................... 57By Joost Beaumont, ABN AMRO, Jonny Sylven, Swedish Bankers, Kaare Christensen, Finance Denmark, Steffen Dahmer, JP Morgan and Michael Weigerding, Commerzbank
1.4 Divining the Future for (Retained) Covered Bond Supply in Light of TLTRO Repayments ............... 67By Maureen Schuller, ING Bank
1.5 Extendable Maturity Structures – The New Standard .................................................................... 73By Franz Rudolf, UniCredit, Karsten Rühlmann, LBBW and Elena Bortolotti, Barclays
1.6 Capital Markets Union – Moving Eastwards .................................................................................. 85By Jacek Kubas, EBRD and Richard Kemmish, Consultant
1.7 Macroprudential Measures in Real Estate Markets and their Effect on Covered Bonds ................... 94By Alexandra Schadow and Karsten Rühlmann, LBBW
1.8 Energy Efficient Mortgages Initiative: The Dawn of a New Asset Class & its Impact on Covered Bond Funding ......................................................................................... 103By Luca Bertalot, EMF-ECBC Secretary General, Jennifer Johnson, Marie Louise Andersen, EMF-ECBC and Frank Will, HSBC & Chairman of the ECBC EU Legislation Working Group
1.9 Local Public Sector Investments and Export Loans – Public Sector Covered Bonds as Key Funding Instrument ........................................................................................................ 110By Ralf Berninger, SFIL
1.10 European Secured Notes as a New Asset Class .......................................................................... 117By Boudewijn Dierick, BNP Paribas, Moderator of the ESN Task Force & Deputy Chairman of the ECBC
1.11 Investor Perspective .................................................................................................................. 123By Cristina Costa, Société Générale and Sabrina Miehs, Helaba
CHAPTER 2 - GENERIC SECTION 129
2.1 Overview of Covered Bonds ....................................................................................................... 131By Ralf Grossmann, Société Générale and Otmar Stöcker, Association of German Pfandbrief Banks
2.2 Regulatory Issues ...................................................................................................................... 142By Frank Will, HSBC & Chairman of the ECBC EU Legislation Working GroupFlorian Eichert, Crédit Agricole & ECBC Statistics & Data Working Group ChairmanAlexandra Schadow, Head of Corporates/Financials/Covered Bonds/Agencies Research, Landesbank Baden-Württemberg
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2.3 The Repo Treatment of Covered Bonds by Central Banks ............................................................ 164By Frank Will, HSBC & Chairman of the ECBC EU Legislation Working Group
2.4 Covered Bonds vs. Other Asset Classes ..................................................................................... 191By Florian Eichert, Crédit Agricole CIB & Chairman of the ECBC Statistics & Data Working Group,Frank Will, HSBC & Chairman of the ECBC EU Legislation Working Group and Sebastian von Koss, HSBC
2.5 USD and GBP Denominated Covered Bond Markets .................................................................... 208By Frank Will, HSBC & Chairman of the ECBC EU Legislation Working Group
CHAPTER 3 - THE ISSUER’S PERSPECTIVE 217
3.1 Armenia .................................................................................................................................... 219By Eleonora Mkrtchyan, Central Bank of Armenia and Edmond Vardumyan, National Mortgage Company RCO
3.2 Australia .................................................................................................................................... 227By Chris Dalton and Robert Gallimore, Australian Securitisation Forum
3.3 Austria ...................................................................................................................................... 233By Alexa Molnar-Mezei, Erste Group Bank and Friedrich Jergitsch, Freshfields Bruckhaus Deringer
3.4 Belgium ..................................................................................................................................... 239By Dries Janssens, Belfius Bank
3.5 Brazil ......................................................................................................................................... 247By ABECIP – The Brazilian Association of Real Estate Loans
3.6 Bulgaria .................................................................................................................................... 251By Yolanda Hristova, UniCredit Bulbank AD and Franz Rudolf, UniCredit
3.7 Canada ...................................................................................................................................... 257By Canada Mortgage and Housing Corporation (CMHC)
3.8 Chile ......................................................................................................................................... 265By Danilo Castañeda, Camila Herrera and Antonio Procopio, Banco Santander Chile
3.9 Cyprus ...................................................................................................................................... 269By Christina Kypri-Georgiadou, Bank of Cyprus
3.10 Czech Republic .......................................................................................................................... 279By Libor Ondřich, UniCredit Bank Czech Republic and Slovakia
3.11 Denmark ................................................................................................................................... 285By Mette Saaby Pedersen, Finance Denmark, Svend Bondorf and Anton Holmgaard Nielsen, Nykredit
3.12 Finland ...................................................................................................................................... 295By Timo Ruotsalainen, Aktia Bank plc and Bernd Volk, Deutsche Bank
3.13 France ....................................................................................................................................... 301By Alexis Latour, BNP Paribas, Alcyme Delannoy, CFF, Marc Nocart, Caisse de Refinancement de l’Habitat, Cristina Costa, Société Générale and Jennifer Levy, Natixis
3.14 Germany ................................................................................................................................... 327By Wolfgang Kälberer, Association of German Pfandbrief Banks & Chairman of the ECBC Fact Book Working Group and Otmar Stöcker, Association of German Pfandbrief Banks
3.15 Greece ...................................................................................................................................... 335By Alexander Metallinos, Karatzas & Partners Law Firm
3.16 Hungary .................................................................................................................................... 343By András Gábor Botos, Erste Mortgage Bank, Rita Bozzai and Illés Tóth, Takarék Mortgage Bank Co. Plc.
3.17 Iceland ...................................................................................................................................... 349By Eiríkur Ársælsson, Arion Bank
3.18 Ireland ...................................................................................................................................... 355By Sinéad Gormley, Bank of Ireland and Nick Pheifer, DEPFA BANK
3.19 Italy .......................................................................................................................................... 363By Marco Marino, Italian Banking Association
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3.20 Latvia ........................................................................................................................................ 369By Kaspars Gibeiko, Santa Rubīna, Senior Associate, Sorainen, Agneta Rumpa, Associate, Sorainen, Richard Kemmish, consultant and Jacek Kubas, EBRD
3.21 Luxembourg .............................................................................................................................. 375By Matthias Melms, NORD/LB and Frank Will, HSBC & Chairman of the ECBC EU Legislation Working Group
3.22 The Netherlands ........................................................................................................................ 381By Joost Beaumont, ABN AMRO Bank, Ruben van Leeuwen, Rabobank and Maureen Schuller, ING Bank
3.23 New Zealand ............................................................................................................................. 389By Frank Will, HSBC & Chairman of the EU Legislation Working Group
3.24 Norway ...................................................................................................................................... 395By Michael H. Cook, Finance Norway
3.25 Panama ..................................................................................................................................... 403By Frank Will, HSBC & Chairman of the EU Legislation Working Group
3.26 Poland ....................................................................................................................................... 409By Agnieszka Tułodziecka, Polish Mortgage Credit Foundation, Krzysztof Dubejko, mBank Hipoteczny and Daniel Goska, PKO Bank Hipoteczny
3.27 Portugal .................................................................................................................................... 417By Alda Pereira, Caixa Geral de Depósitos
3.28 Romania .................................................................................................................................... 427By Romanian Association of Banks and Adrian-Stefan Sacalschi, Takarék Mortgage Bank
3.29 Russia ....................................................................................................................................... 433By Tim Lassen, PFP Group Ltd., Representative Office, Moscow
3.30 Singapore .................................................................................................................................. 441By Colin YS Chen, DBS Bank & Chairman of the ECBC Global Issues Working Group and Franz Rudolf, UniCredit
3.31 Slovakia .................................................................................................................................... 445By Slavomíra Páleníková and Andrej Zeher, Všeobecná úverová banka, Slovak Republic and Matej Krčmár, National bank of Slovakia
3.32 Slovenia .................................................................................................................................... 453By Franz Rudolf, UniCredit Bank AG
3.33 South Korea .............................................................................................................................. 459By Hoin Lee, Kim & Chang and Frank Will, HSBC & Chairman of the ECBC EU Legislation Working Group
3.34 Spain ........................................................................................................................................ 469By Gregorio Arranz, Spanish Mortgage Association
3.35 Sweden ..................................................................................................................................... 477By Jonny Sylvén, Association of Swedish Covered Bond Issuers (ASCB)
3.36.1 Switzerland – Swiss Pfandbriefe ................................................................................................. 487By Robert Horat and Markus Müller, Pfandbriefbank schweizerischer Hypothekarinstitute AG
3.36.2 Switzerland – Contractual Covered Bonds .................................................................................. 493By Bernd Volk, Deutsche Bank, Marco Brück, Valiant Bank, Boudewijn Dierick, BNP Paribas and Michael McCormick, Credit Suisse
3.37 Turkey ....................................................................................................................................... 499By Özlem Gökçeimam, Garanti Bank
3.38 United Kingdom ......................................................................................................................... 505By John Millward, HSBC and Ian Stewart, UK RCBC
3.39 United States ............................................................................................................................ 517By Steffen Dahmer, J.P. Morgan, Moderator of the ECBC Liquidity Task Force & Chairman of the ECBC Market Related Issues Working Group
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CHAPTER 4 - RATING AGENCIES & METHODOLOGY 523
4.1 Credit Rating Agency Approaches: Introduction ......................................................................... 525By Elena Bortolotti, Barclays, Chairwoman of the ECBC Rating Agency Approaches Working Group
4.2 DBRS Covered Bond Rating Methodology ................................................................................... 527By Vito Natale and Claire Mezzanotte, DBRS
4.3 Fitch Ratings Covered Bond Rating Methodology ........................................................................ 535By Carmen Muñoz and Beatrice Mezza, Fitch Ratings
4.4 Moody’s Covered Bond Rating Methodology ............................................................................... 543By Jane Soldera, Nicholas Lindstrom and Juan Pablo Soriano, Moody’s Investors Service
4.5 S&P Global Ratings Covered Bond Rating Methodology ............................................................... 551By Barbara Florian and Antonio Farina, S&P Global Ratings
4.6 Scope Ratings Covered Bond Rating Methodology ...................................................................... 559By Karlo Fuchs and Guillaume Jolivet, Scope Ratings
4.7 Capital Intelligence Ratings Covered Bond Rating Methodology .................................................. 565By Kathleen Gamper and Michael Zlotnik, Capital Intelligence Ratings
CHAPTER 5 - COVERED BOND STATISTICS 573
5.1 Introduction and Methodology ................................................................................................... 575By Florian Eichert, Crédit Agricole CIB and Chairman of the ECBC Statistics & Data Working Group
5.2 Statistics ................................................................................................................................... 582
5.2.1 Total ........................................................................................................................... 582
5.2.2 Total 2017 statistics by type of assets ......................................................................... 583
5.2.3 Australia ..................................................................................................................... 584
5.2.4 Austria ........................................................................................................................ 585
5.2.5 Belgium ...................................................................................................................... 586
5.2.6 Canada ....................................................................................................................... 587
5.2.7 Cyprus ........................................................................................................................ 588
5.2.8 Czech Republic ........................................................................................................... 589
5.2.9 Denmark .................................................................................................................... 590
5.2.10 Finland ....................................................................................................................... 591
5.2.11 France ........................................................................................................................ 592
5.2.12 Germany .................................................................................................................... 593
5.2.13 Greece ....................................................................................................................... 594
5.2.14 Hungary ..................................................................................................................... 595
5.2.15 Iceland ....................................................................................................................... 596
5.2.16 Ireland ....................................................................................................................... 597
5.2.17 Italy ........................................................................................................................... 598
5.2.18 Latvia ......................................................................................................................... 599
5.2.19 Luxembourg ............................................................................................................... 600
5.2.20 The Netherlands ......................................................................................................... 601
5.2.21 New Zealand ............................................................................................................... 602
5.2.22 Norway ....................................................................................................................... 603
5.2.23 Panama ...................................................................................................................... 604
5.2.24 Poland ........................................................................................................................ 605
5.2.25 Portugal ...................................................................................................................... 606
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5.2.26 Singapore ................................................................................................................... 607
5.2.27 Slovakia ...................................................................................................................... 608
5.2.28 South Korea ................................................................................................................ 609
5.2.29 Spain .......................................................................................................................... 610
5.2.30 Sweden ...................................................................................................................... 611
5.2.31 Switzerland ................................................................................................................. 612
5.2.32 Turkey ........................................................................................................................ 613
5.2.33 United Kingdom .......................................................................................................... 614
5.2.34 United States .............................................................................................................. 615
5.2.35 Annex: European Central Bank exchange rates with the EURO, year end ..................... 616
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LIST OF CONTRIBUTORS
We are most grateful for the time, effort and expertise which the following contributors have lent to the production of this book.
FOREWORDNiek AllonECBC Chairman EUROPEAN COVERED BOND [email protected]
Luca BertalotSecretary General EUROPEAN COVERED BOND [email protected]
CHAPTER 1 KEY THEMES OF THE YEARJoost BeaumontSenior Fixed Income StrategistABN AMRO BANK [email protected]
Matthias Melms, CIIA, CCrAHead of Covered Bond & SSA Research; Senior DirectorNORDDEUTSCHE LANDESBANK – NORD/LB – [email protected]
Franz RudolfManaging DirectorHead of Financials Credit Research – UniCredit [email protected]
Maureen SchullerHead of Financials Research ING BANK [email protected]
Steffen DahmerModerator of the ECBC Liquidity Task Force Chairman of the ECBC Market Related Issues Working GroupExecutive Director – Global Product Manager Covered Bonds, Syndicate Covered BondsJP [email protected]
Jonny Sylvén Head of ASCB Secretariat/Senior AdviserASSOCIATION OF SWEDISH COVERED BOND ISSUERS (ASCB)[email protected]
Kaare ChristensenHead of DepartmentFINANCE DENMARK [email protected]
Michael WeigerdingSenior Analyst, Covered Bond ResearchCommerzbank [email protected]
Alexandra SchadowDirectorLANDESBANK BADEN-WÜRTTEMBERG – [email protected]
Karsten RühlmannSenior Investment AnalystLANDESBANK BADEN-WÜRTTEMBERG – [email protected]
Elena BortolottiChairwoman of the ECBC Rating Agency Approaches Working GroupHead of Covered Bond Structuring, Barclays [email protected]
Jacek KubasPrincipal – Local Currency and Capital Markets DevelopmentEUROPEAN BANK FOR RECONSTRUCTION AND [email protected]
Richard KemmishFounder Richard Kemmish Consulting [email protected]
Luca BertalotSecretary General EUROPEAN COVERED BOND [email protected]
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Jennifer Johnson Head of Legal & Economic AffairsEUROPEAN COVERED BOND [email protected]
Marie Louise AndersenPolicy AdviserEUROPEAN COVERED BOND [email protected]
Frank WillChairman of the ECBC EU Legislation Working GroupGlobal Head of Covered Bond ResearchHSBC [email protected]
Ralf BerningerHead of Investor RelationsSFIL [email protected]
Boudewijn DierickECBC Deputy ChairmanModerator of the ECBC European Secured Notes (ESN) Task ForceHead of Covered Bond and Flow ABS StructuringBNP [email protected]
Cristina CostaDirector – Covered Bond AnalystSOCIÉTÉ GÉNÉ[email protected]
Sabrina MiehsCovered Bond [email protected]
CHAPTER 2 GENERIC SECTIONRalf GrossmannSOCIÉTÉ GÉNÉ[email protected]
Otmar StöckerManaging DirectorASSOCIATION OF GERMAN PFANDBRIEF BANKS – [email protected]
Cristina CostaDirector – Covered Bond SOCIÉTÉ GÉNÉ[email protected]
Florian EichertChairman of the ECBC Statistics & Data Working GroupHead of Covered Bond & SSA Research – Credit ResearchCRÉDIT AGRICOLE [email protected]
Alexandra SchadowDirectorLANDESBANK BADEN-WÜRTTEMBERG – [email protected]
Frank WillChairman of the ECBC EU Legislation Working GroupGlobal Head of Covered Bond ResearchHSBC [email protected]
Sebastian von KossSenior Covered Bond [email protected]
CHAPTER 3 THE ISSUER’S PERSPECTIVEARMENIAEleonora MkrtchyanLegal CounselCentral Bank of [email protected]
Edmond VardumyanCEONational Mortgage Company [email protected]
AUSTRALIAChris Dalton Chief Executive Officer THE AUSTRALIAN SECURITISATION FORUM – [email protected]
Robert Gallimore Policy Executive THE AUSTRALIAN SECURITISATION FORUM – [email protected]
AUSTRIAAlexa Molnar-Mezei Structurer, AdviserERSTE GROUP / AUSTRIAN PFANDBRIEF AND COVERED BOND [email protected]
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Friedrich Jergitsch PartnerFRESHFIELDS BRUCKHAUS [email protected]
BELGIUMDries JanssensSenior AdvisorBELFIUS [email protected]
BRAZILFilipe PontualManaging DirectorABECIP – The Brazilian Association of Real Estate [email protected]
BULGARIAYolanda HristovaManager Capital MarketsUNICREDIT [email protected]
Franz RudolfManaging DirectorHead of Financials Credit Research – UniCredit [email protected]
CANADA Lily Shum Covered Bond Advisor CANADA MORTGAGE AND HOUSING [email protected]
CHILEDanilo Castañeda Head of Funding – Financial Management Division BANCO SANTANDER [email protected]
Camila HerreraHead of Bonds & IFI – Financial Management DivisionBANCO SANTANDER [email protected]
Antonio ProcopioTrader of Markets – Financial Management Division BANCO SANTANDER [email protected]
CYPRUSChristina Kypri-GeorgiadouHead Group Funding DepartmentGroup Treasury BANK OF [email protected]
CZECH REPUBLIC Libor OndřichHead of Assets and Liabilities ManagementUNICREDIT BANK CZECH REPUBLIC AND SLOVAKIA, A.S. [email protected]
DENMARKSvend BondorfChief AnalystNYKREDIT GROUP [email protected]
Anton Holmgård NielsenAttorney-at-lawNYKREDIT GROUP LEGAL [email protected]
Mette Saaby PedersenHead of DepartmentFINANCE [email protected]
FINLANDTimo RuotsalainenHead of Treasury and IR, AKTIA BANK PLCManaging Director, AKTIA REMB [email protected]
Bernd VolkDirector, Head of European Covered Bond & Agency ResearchDEUTSCHE [email protected]
FRANCEAlexis LatourLegal Head of Funding – Securitisation BNP [email protected]
Alcyme DalannoyCRÉDIT FONCIER DE FRANCE – CFF [email protected]
Marc NocartChief Executive Officer CRH – CAISSE DE REFINANCEMENT DE L’[email protected]
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Cristina CostaDirector – Covered Bond SOCIÉTÉ GÉNÉ[email protected]
Jennifer LevySenior Covered Bond [email protected]
GERMANYWolfgang KälbererChairman of the ECBC Fact Book Working GroupHead of Brussels OfficeASSOCIATION OF GERMAN PFANDBRIEF BANKS – vdp [email protected]
Otmar StöckerManaging DirectorASSOCIATION OF GERMAN PFANDBRIEF BANKS – vdp [email protected]
GREECE Alexander MetallinosPartnerKARATZAS & PARTNERS LAW [email protected]
HUNGARYRita BozzaiDirector Takarék Mortgage Bank Co. [email protected]
András Gábor BotosDeputy CEOERSTE MORTGAGE BANK [email protected]
Illés TóthSenior AssociateFHB MORTGAGE BANK CO. [email protected]
ICELANDEiríkur ÁrsælssonFunding specialistARION [email protected]
IRELANDNick PheiferHead of LegalDEPFA BANK [email protected]
Sinéad Gormley Senior Legal Adviser Group Legal ServicesBANK OF [email protected]
ITALYMarco Marino Analyst, Credit departmentITALIAN BANKING [email protected]
LATVIAAgneta Rumpa [email protected]
Santa RubīnaSenior [email protected]
Richard KemmishFounder Richard Kemmish Consulting [email protected]
Jacek KubasPrincipal – Local Currency and Capital MarketsDevelopmentEUROPEAN BANK FOR RECONSTRUCTION [email protected]
LUXEMBOURGMatthias Melms, CIIA, CCrAHead of Covered Bond & SSA Research; Senior DirectorNORDDEUTSCHE LANDESBANK – NORD/LB – [email protected]
Frank WillChairman of the ECBC EU Legislation Working GroupGlobal Head of Covered Bond ResearchHSBC [email protected]
THE NETHERLANDSJoost BeaumontSenior Fixed Income StrategistABN AMRO BANK [email protected]
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Maureen SchullerHead of Financials Research ING BANK [email protected]
Ruben van LeeuwenHead of Credit Strategy & [email protected]
NEW ZEALANDFrank WillChairman of the ECBC EU Legislation Working GroupGlobal Head of Covered Bond ResearchHSBC [email protected]
NORWAYMichael H. CookSenior AnalystFINANCE NORWAY [email protected]
PANAMAFrank WillChairman of the ECBC EU Legislation Working GroupGlobal Head of Covered Bond ResearchHSBC [email protected]
POLANDAgnieszka Drewicz-TułodzieckaPresidentPOLISH MORTGAGE CREDIT [email protected]
Daniel GoskaHead of ControllingPKO Bank Hipoteczny [email protected]
Krzysztof Dubejko Head of Treasury DepartmentmBANK [email protected]
PORTUGALAlda PereiraCapital Markets FundingCAIXA GERAL DE DEPÓ[email protected]
ROMANIARomanian Association of Bankswww.arb.ro
Adrian-Stefan SacalschiHead of Branch FrankfurtTakarék Mortgage [email protected]
RUSSIA Tim LassenDirector for Foreign Legal AffairsPFIG HOLDING, MoscowRussian [email protected]
SINGAPOREColin YS ChenChairman of the ECBC Global Issues Working GroupManaging Director and Head – Structured Debt SolutionsDBS BANK [email protected]
Franz RudolfManaging DirectorHead of Financials Credit Research – UniCredit [email protected]
SLOVAKIAAndrej HronecHead of Treasury & ALM DepartmentVšeobecná úverová banka, [email protected]
Slavomíra PáleníkováSenior primary issue specialistVšeobecná úverová banka, [email protected]
Matej KrčmárSenior bank regulatory expertNational bank of [email protected]
SLOVENIAFranz RudolfManaging DirectorHead of Financials Credit Research – UniCredit [email protected]
SOUTH KOREAHoin LeeSenior Foreign AttorneyKIM & [email protected]
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Frank WillChairman of the ECBC EU Legislation Working GroupGlobal Head of Covered Bond ResearchHSBC [email protected]
SPAINGregorio ArranzSecretary GeneralSPANISH MORTGAGE ASSOCIATION – [email protected]
SWEDENJonny SylvénHead of ASCB Secretariat/Senior AdviserASSOCIATION OF SWEDISH COVERED BOND ISSUERS (ASCB)[email protected]
SWITZERLANDMarco BruckHead TreasuryValiant Bank [email protected]
Boudewijn DierickECBC Deputy ChairmanModerator of the ECBC European Secured Notes (ESN) Task ForceHead of Covered Bond and Flow ABS StructuringBNP [email protected]
Markus MüllerPFANDBRIEFBANKSCHWEIZERISCHER HYPOTHEKARINSTITUTE [email protected]
Bernd VolkDirector, Head of European Covered Bond & Agency Research Deutsche [email protected]
Robert HoratChief Executive OfficerPFANDBRIEFBANK SCHWEIZERISCHER HYPOTHEKARINSTITUTE [email protected]
Michael P McCormickDirector – Head of Covered Bond OriginationCREDIT SUISSE [email protected]
TURKEYÖzlem GÖKÇEİMAMHead of Structured Finance / Financial InstitutionsGARANTI [email protected]
UNITED KINGDOMJohn MillwardDirector, Structured FinanceHSBC BANK [email protected]
Ian StewartExecutive DirectorUK [email protected]
UNITED STATESSteffen DahmerModerator of the ECBC Liquidity Task Force Chairman of the ECBC Market Related Issues Working GroupExecutive Director – Global Product Manager Covered Bonds, Syndicate Covered BondsJP [email protected]
CHAPTER 4 RATING AGENCIES & METHODOLOGYElena BortolottiChairwoman of the ECBC Rating Agency Approaches Working GroupHead of Covered Bond Structuring, Barclays [email protected]
DBRSVito Natale Senior Vice President, EU RMBS & Covered [email protected]
Claire MezzanotteGroup Managing Director, Global Structured [email protected]
FITCH RATINGSCarmen MuñozSenior DirectorFITCH [email protected]
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Beatrice MezzaSenior DirectorFitch [email protected]
MOODY‘SJane SolderaVice President – Senior Credit OfficerMOODY’S INVESTORS SERVICE [email protected]
Juan Pablo SorianoManaging DirectorMOODY’S INVESTORS SERVICE [email protected]
Nicholas LindstromAssociate Managing DirectorMOODY’S INVESTORS SERVICE [email protected]
S&P GLOBAL RATINGSBarbara FlorianSenior Director Analytical ManagerS&P GLOBAL [email protected]
Antonio FarinaSenior Director S&P GLOBAL [email protected]
SCOPE RATINGS GmbHKarlo Stefan FuchsExecutive Director, Head of Covered BondsSCOPE RATINGS [email protected]
Guillaume JolivetManaging Director, Head of Structured FinanceSCOPE RATINGS [email protected] CAPITAL INTELLIGENCE RATINGSKathleen GamperSenior Credit AnalystCAPITAL INTELLIGENCE [email protected]
Michael Zlotnik Lead Analytical ManagerCAPITAL INTELLIGENCE [email protected]
CHAPTER 5 COVERED BOND STATISTICSFlorian EichertChairman of the ECBC Statistics & Data Working GroupHead of Covered Bond & SSA Research – Credit ResearchCRÉDIT AGRICOLE [email protected]
AUSTRALIAChris DaltonChief Executive OfficerTHE AUSTRALIAN SECURITISATION FORUM – [email protected]
Stephen Maher Division Director, Commodities and Financial Markets MACQUARIE GROUP [email protected]
Robert Gallimore Policy Executive THE AUSTRALIAN SECURITISATION FORUM – [email protected]
AUSTRIAFlorian Eichert Chairman of the ECBC Statistics & Data Working Group Head of Covered Bond & SSA Research – Credit Research CRÉDIT AGRICOLE CIB [email protected]
Katarzyna Kapeller Head Office TreasuryRAIFFEISEN BANK INTERNATIONAL [email protected]
BELGIUMMaureen SchullerHead of Financials ResearchING BANK [email protected]
CANADALily Shum Covered Bond Advisor CANADA MORTGAGE AND HOUSING [email protected]
Andrea LowSenior Analyst, Covered Bonds Monitoring CANADA MORTGAGE HOUSING CORPORATION – CMHC [email protected]
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CYPRUSJoannis DeltasOfficer Group Funding Department – Finance Division BANK OF [email protected]
CZECH REPUBLIC Stepan NyvltHead of Debt Origination / Structuring & Bond SalesUNICREDIT BANK CZECH REPUBLIC AND SLOVAKIA, A.S. [email protected]
DENMARKKaare ChristensenHead of DepartmentFINANCE DENMARK [email protected]
FINLANDTimo RuotsalainenHead of Treasury and IR, AKTIA BANK PLCManaging Director, AKTIA REMB [email protected]
Bernd VolkDirector, Head of European Covered Bond & Agency ResearchDEUTSCHE [email protected]
FRANCEBoudewijn Dierick ECBC Debuty ChairmanModerator of the ECBC European Secured Notes (ESN) Task Force Head of Covered Bond and Flow ABS Structuring BNP [email protected]
GERMANYSwen PrillaCapital Markets ASSOCIATION OF GERMAN PFANDBRIEF BANKS – VDP [email protected]
GREECE Iason Sozon PeveretosCapital Management & Banking Supervision DivisionALPHA BANK [email protected]
HUNGARYIldikó Kajtor-WielandChief Legal AdviserHUNGARIAN BANKING [email protected]
ICELANDEiríkur Magnús JenssonHead of FundingARION [email protected]
Eirikur ArsaelssonFunding ARION [email protected]
IRELANDGavin PurtillHead of Capital Markets BANKING AND PAYMENTS FEDERATION IRELAND / ACS [email protected]
ITALYMarco Marino Analyst, Credit departmentITALIAN BANKING ASSOCIATION – [email protected]
LATVIAMatthias Melms, CIIA, CCrAHead of Covered Bond & SSA Research; Senior DirectorNORDDEUTSCHE LANDESBANK – NORD/LB – [email protected]
LUXEMBOURGMatthias Melms, CIIA, CCrAHead of Covered Bond & SSA Research; Senior DirectorNORDDEUTSCHE LANDESBANK – NORD/LB – [email protected]
THE NETHERLANDSMaureen SchullerHead of Financials ResearchING BANK [email protected]
NEW ZEALANDFrank WillChairman of the ECBC EU Legislation Working GroupGlobal Head of Covered Bond ResearchHSBC [email protected]
NORWAYMichael H. CookSenior AnalystFINANCE NORWAY [email protected]
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PANAMAFrank WillChairman of the ECBC EU Legislation Working GroupGlobal Head of Covered Bond ResearchHSBC [email protected]
POLANDDaniel GoskaHead of ControllingPKO Bank [email protected]
PORTUGALAlda PereiraCapital Markets FundingCAIXA GERAL DE DEPÓ[email protected]
SINGAPOREFranz RudolfManaging DirectorHead of Financials Credit Research – UniCredit [email protected]
SLOVAKIAFranz RudolfManaging DirectorHead of Financials Credit Research – UniCredit [email protected]
SOUTH KOREAFrank WillChairman of the ECBC EU Legislation Working GroupGlobal Head of Covered Bond ResearchHSBC [email protected]
SPAINGregorio Arranz PumarSecretary GeneralSPANISH MORTGAGE ASSOCIATION – [email protected]
Leyre López Research SPANISH MORTGAGE ASSOCIATION – [email protected]
SWEDENChristian Nilsson Senior Adviser, Statistics and Reporting ASSOCIATION OF SWEDISH COVERED BOND ISSUERS – ASCB [email protected]
SWITZERLANDRobert HoratChief Executive OfficerPFANDBRIEFBANK SCHWEIZERISCHER HYPOTHEKARINSTITUTE [email protected]
Markus Müller Member of the Board of DirectorsPFANDBRIEFBANK SCHWEIZERISCHER HYPOTHEKARINSTITUTE [email protected]
Michael P McCormickDirector – Head of Covered Bond OriginationCREDIT SUISSE [email protected]
UNITED KINGDOMMichael WeigerdingCovered Bond [email protected]
Ian StewartExecutive DirectorUK [email protected]
UNITED STATESAlexandra SchadowHead of Financials – Covered Bond ResearchLANDESBANK BADEN-WÜ[email protected]
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FOREWORDLooking back over the last year, significant developments have taken place in the covered bond industry. As such, the covered bond product – the most traditional and European asset class in the European financial landscape – faces a changing environment both within Europe and beyond, which brings about new opportuni-ties but also new challenges.
These new developments, which in many aspects are touching new ground, can only be assessed in the con-text of the essential role played by the covered bond product in the European financial system as a strategic funding source. The product enhances macroprudential banking practices and guarantees vital access to capital markets for lenders. In stressed and distressed market conditions – both historically and more recently – the product benefits from a solid investor base, which enables cost-efficient lending to the real economy. No less than one in four mortgages in continental Europe have been financed via covered bonds.
To a certain degree, the success of the covered bond product, both as a crisis management tool and as a cost-efficient lending instrument, has been contingent on the fact that the covered bond industry recognises that continual adaptation to the regulatory environment and evolution in the light of new market conditions is a key ingredient in the product formula.
Indeed, this recipe continues to manifest itself and was exemplified with the establishment of the Covered Bond Label in 2012 where the Industry – led by the ECBC – came together in response to a market-wide need for common qualitative and quantitative standardised disclosure. By means of its standardised covered bond disclosure template(s), the Covered Bond Label has enhanced market transparency, product comparability and financial stability. Further market efforts were undertaken in 2016, when the Covered Bond Labelled Is-suers developed the Harmonised Transparency Template (HTT) to provide harmonised cover pool information, thereby facilitating investors’ due diligence. As of the time of writing, the Covered Bond Label represents 65% of global covered bonds outstanding – a testimony to the central role played by the Industry in the continued progression of the covered bond market. Further details regarding the Covered Bond Label are provided within the Introduction Article “Covered Bond Label”.
New EU Framework for Covered Bonds & Global Recognition
From a macroprudential viewpoint, the significance of the covered bond product, both as a crisis management and funding tool to the wider economy, has raised the need for the asset class to have appropriate regulatory and legislative treatment, at EU and, increasingly, global level. Reflecting this necessity, significant political developments have taken place over the past year.
In the context of the European Commission’s Capital Markets Union (CMU) project, noteworthy efforts have been undertaken at an EU level to harmonise national covered bond frameworks in Member States, with market consultations, studies and recommendations having been put forward by the different European Institutions. These efforts culminated with the European Commission’s publication in March 2018 of a formal proposal for an EU Framework for Covered Bonds.
The proposal, which consists of two elements, a Directive and a Regulation, is to be seen as a single pack-age and reference point for covered bond legislation at EU level, which until now (as described in Article 2.2 “Regulatory Issues”) has been deployed across a series of regulatory texts.
The European Commission’s proposal is principle-based in nature and aims to specify the core elements of a covered bond whilst providing a common definition. Importantly, the proposed EU Framework for Covered Bonds is not meant to result in a uniform model for the covered bond asset class which is rich in history and tradition. Rather, it aims to provide a coherent legislative reference for the asset class whilst enhancing transparency requirements and defining the key qualitative characteristics of the product in a single text. Encouragingly, the
Foreword
By Niek Allon, ECBC Chairman and Luca Bertalot, EMF-ECBC Secretary General
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proposal recognises the fundamental role played by the Covered Bond Label as a globally recognised bench-mark in improving transparency, harmonisation and setting high qualitative standards in the covered bond space. The proposal moreover explores the possibility of introducing a third-country regime for covered bonds in European Union law. Further details regarding the proposed EU Framework for Covered Bonds are provided within Key Theme Article 1.1 “Covered Bond Harmonisation: A Milestone Reached”.
Ensuring successful regulatory developments at a political level is one of the main objectives of the EMF-ECBC. In this respect, throughout out the legislative process of the proposal for an EU Framework for Covered Bonds, we have (and continue) to advocate for a high-quality principle-based approach which will ensure that national markets continue to function whilst safeguarding the prominent role of covered bonds as a crisis management tool able to promote: (i) long-term financing; (ii) investors’ confidence; and (iii) financial stability. In this context, on behalf of the entire ECBC we would like to take the opportunity of this Foreword to express our appreciation of the careful market analysis which has been undertaken by the European Commission in the drafting of the proposal.
At the time of writing, the proposed EU Framework is being discussed in the European Parliament and the Council, with its adoption anticipated to take place towards the end of 2018 or at the beginning of 2019. The Framework will officially enter into force 12-months after its adoption at EU level. The ECBC continues to monitor closely related developments and stands ready to provide market insights and support the legislative process, and subsequently its market implementation, by acting as market think-tank.
Looking beyond Europe, regulatory changes of significant importance to the covered bond industry are also taking place at a global level. The Basel Committee on Banking Supervision finalised the so-called Basel III Reform in December 2017. Notably, for the first time, the new standards formally recognise the robustness of covered bonds at the global level, reflected in preferential risk weights attached to the asset class. Similarly, the fact that the Basel III recommendations capture the key qualitative features already intrinsic to the Covered Bond Label represents a major success for the Industry. As a global platform and think-tank for the covered bond industry, the ECBC has played a central role in the development of a global covered bond market and in securing appropriate capital treatment for the asset class.
Indeed, as part of the effort to assist non-European jurisdictions in benefiting from the many advantages linked to the traditional European covered bond product, the ECBC undertook - via its Global Issues Working Group – a study entitled “Covered Bonds: A global perspective”1 towards the end of 2017. The Study, which is the first of its kind, presents a comprehensive mapping as well as market analysis pinpointing trigger points for how to develop synergies between traditional covered bond markets and new and emerging covered bond markets.
Market Developments & EMF-ECBC Market Initiatives
Covered bonds are, in many aspects, the heart of the European financial tradition and they continue to play a pivotal role in both the financial system itself as well as the real economy. With close to EUR 2.5 trillion outstand-ing at the end of 2017, covered bonds continue to prove their strategic importance for European capital markets, contributing to effective allocation of capital and, ultimately, to economic recovery, stability and development.
Even though the covered bond market has remained stable in terms of its size across several data series, it is evident that the European Central Bank’s (ECB) Covered Bond Purchase Programme (CBPP) has impacted the liquidity of the market in recent years. Therefore, it will be interesting to follow how the tapering of the CBPP, which is anticipated to take place from the end of 2018, will impact the market going forward.
Looking more closely at the market itself, it is clear that the most common collateral used for covered bonds is residential and commercial mortgages, which accounts for over EUR 2.1 trillion or nearly 87% of the out-standing market in 2017 – a share which has been constantly increasing since in 2003, when the figure was only 40%. The major players remain Denmark, Germany, France and Spain, which collectively account for
1 https://hypo.org/app/uploads/sites/3/2018/05/Covered-Bonds-A-global-perspective.pdf
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54% of the outstanding covered bonds in the market. Looking beyond Europe, outstanding covered bonds from non-EU countries accounted for around 16.5% of the total in 2017, a 0.5 percentage points decrease with respect to the previous year. Reflecting the increasing interest from non-EU jurisdictions, with Australia, Brazil, Canada, New Zealand and South Korea having implemented covered bond legislation in recent years, meanwhile major jurisdictions such as India, Morocco and the Baltic states – to name but a few – are in the process of drafting legislation. It is expected that the new EU covered bond framework and the Basel III Reform will give a further push to the continuous interest in and development of covered bonds within new countries both inside and outside the EU.
Zooming in on market trends, it is clear that increasing attention is being given to green and sustainable cov-ered bonds, an area which is coming under growing political focus at EU level with the first ever Action Plan on Sustainable Finance having been published in the spring of 2018. Against this background and with a view to facilitating market standards within this new product feature, in 2017 the EMF-ECBC implemented a “Sustain-able Covered Bond” market definition via the Covered Bond Label, which is identified by means of a “green leaf” icon appearing next to the ISIN of the relevant sustainable covered bond. Market standards in respect to the different maturity profiles were also facilitated by the Covered Bond Label in 2017, with the implementa-tion of various maturity market definitions. Through these developments, the Covered Bond Label facilitates homogeneous formatted disclosure for almost two third of the global covered bond market outstanding.
As part of its work to best represent the interests of the mortgage and covered bond industries, the EMF-ECBC has continued its market development efforts by coordinating two further significant market-led initiatives (listed below) in close cooperation with market stakeholders and political institutions. As with the Covered Bond Label, the purpose of these initiatives is to foster pan-European solutions which can help enhance market transparency and facilitate the convergence of market best practices, whilst creating synergies between the mortgage and covered bond value chain.
The European Secured Note (ESN)
In the context of the CMU, and to help strengthen banks’ capacity to support the wider economy, the EMF-ECBC has, via its ESN Task Force, analysed the potential for the creation of a new financial instrument, the European Secured Note (ESN), targeting clients such as small and medium-sized enterprises (SMEs) or infrastructure loans, providing them with long-term funding.
The envisaged ESN proposal, which is currently being discussed at EU level, considers long-term financing solutions for loans to these clients replicating the best practices of covered bonds (for funding purposes) and securitisations (for funding and risk-sharing purposes).
Further details regarding the ESN Initiative and the feasibility studies currently being undertaken at EU level are described within Key Theme Article 1.10 “The European Secured Notes (ESN) as a New Asset Class”.
The Energy Efficient Mortgages (EEM) Initiative
To encourage energy efficient mortgage financing, the EMF-ECBC has, in close cooperation with its members and external partners, taken forward work on the development of a standardised, pan-European Energy Ef-ficient Mortgage financing mechanism designed to incentivise EU citizens to improve the energy efficiency (EE) of their home or to acquire an already energy efficient property by way of preferential financial conditions linked to the mortgage.
This mechanism is intended to be supported by a data protocol and portal to collect and access large-scale empirical evidence relating to energy efficient mortgage assets. This will allow a comprehensive analysis of de-risking energy efficiency features, which, in turn, can stabilise the underlying business case that energy efficiency has a risk mitigation effect for banks. As a result, this should represent a lower risk on the balance sheet of banks and could, therefore, qualify for a better capital treatment.
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Data collection and analysis with a view to establishing this data correlation has already begun in the form of an Energy Efficient Mortgages Pilot Scheme, which was launched in June 2018. Importantly, it is anticipated that the EEM Initiative will deliver a new product, an “Energy Efficient Mortgage”, which could be used for the purposes of green/energy efficient covered bond issuance.
For further details regarding this Initiative, please refer to Key Theme Article 1.8 “Energy Efficient Mortgages Initiative: The Dawn of a New Asset Class & its Impact on Covered Bond Funding”.
Looking ahead
Taking stock of where we have come from, where we are now and where we are heading, it is clear that the market and the environment in which the covered bond functions is constantly evolving and, as such, the work of the ECBC is never done.
The ongoing harmonisation of the covered bond asset class at EU and now also global level represents a new era for the Industry. While principle-based harmonisation as proposed by the European Commission with its EU Framework for Covered Bonds represents an opportunity for further developing the market, it is also clear that the Industry is faced with new regulatory, policy and superiority developments. In conjunction with these, as alluded to above, market conditions, developments and new trends are all impacting and shaping the product here and now and will continue to do so going forward.
In any evolution, there is always a need to preserve the key nature of the product as a crisis management tool rooted in robust qualitative and macroprudential characteristics, which the EMF-ECBC has been advocat-ing in the present covered bond legislative developments at EU and global levels. In this context, the ECBC remains committed to fulfil its role as the leading market think-tank, striving to secure the highest qualitative benchmark in the implementation of the covered bond concept within the EU and beyond, and to defend its justified preferential regulatory treatment going forward.
As this Foreword outlines, through the continuous fine-tuning of covered bond legislation, facilitation of market best practices, and by fostering market initiatives such as the Covered Bond Label, the European Secured Note and the Energy Efficient Mortgage Initiative, the covered bond Industry remains proactive and ready to support the nascent CMU in order to allow markets to realise synergies so as to positively impact the funding value chain.
Against this background, taking into account the political and regulatory developments affecting all covered bond jurisdictions, as well as the market trends and the EMF-ECBC market-led initiatives, this 13th edition of the ECBC Covered Bond Fact Book continues to be:
> The leading source of covered bond market intelligence; and
> The primary source for aggregate covered bond market data and statistics, and a comparative framework analysis.
Niek Allon ECBC Chairman
Luca Bertalot EMF-ECBC Secretary General
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ABOUT THE ECBC
The European Covered Bond Council (ECBC) is the platform that brings together covered bond market participants including covered bond issuers, analysts, investment bankers, rating agencies and a wide range of interested stakeholders. The ECBC was created by the European Mortgage Federation (EMF) in 2004. As of August 2018, the Council has over 120 members across 30 covered bonds jurisdictions and many different market segments. ECBC members represent over 95% of covered bonds outstanding. The ECBC and the EMF re-integrated in 2014 under a common umbrella entity, i.e. the Covered Bond & Mortgage Council (CBMC). The intention is to further develop synergies, share market best practices, achieve convergence across the whole value chain of this Indus-try, and, at the same time, to act as a market catalyst in origination and funding techniques.
Against this background, the purpose of the ECBC is to represent and promote the interests of covered bond market participants at the international level. The ECBC’s main objective is to be the point of reference for matters regarding the covered bond industry and operate as a think-tank, as well as a lobbying and networking platform for covered bond market participants.
ECBC STRUCTURE
The Plenary Meeting is a bi-annual discussion forum where all ECBC members gather around the table to dis-cuss issues and to establish strong network links.
The ECBC Steering Committee, headed by the ECBC Chairman, and composed of representatives from the major covered bond issuing jurisdictions and industry experts, is responsible for the day-to-day activities of the ECBC. It comes together once every quarter and addresses strategy related questions. Furthermore, it coordinates the agenda of the various working groups.
ECBC WORKING GROUPS
> The EU Legislation Working Group, chaired by Mr Frank Will, has over the past years successfully lobbied at EU and international level to obtain appropriate treatment for covered bonds. As well as monitoring and lobbying on the CRD IV/CRR, the European Legislation Working Group is actively working on issues such as Solvency II, the path towards Basel IV, Net Stable Funding Ratio (NSFR) and crisis management.
> The Technical Issues Working Group, chaired by Mr Morten Bækmand Nielsen, represents the techni-cal think thank of the covered bond community, drawing on experts from across the industry to tackle key issues for the industry. The Working Group tackles subjects relating to covered bonds such as the use and treatment of derivatives in the cover pool, bankruptcy remoteness and latest market developments. The Working Group manages and updates a database which provides an overview of covered bond frameworks across the EU and globally, and enables their features to be compared (this is accessible at www.ecbc.eu).
> The Market Related Issues Working Group, chaired by Mr Steffen Dahmer, discusses topics such as the MiFID review and conventions on trading standards and the market-making process. This Working Group is currently leading discussions on improving liquidity in secondary markets and, in the context of the MiFID review, on the issues of pre- and post-trade price transparency.
> The Statistics and Data Working Group, chaired by Mr Florian Eichert, is responsible for collecting and publishing complete and up-to-date information on issuing activities and volumes outstanding of covered bonds in all market segments. With over 30 different covered bond jurisdictions and numerous issuers, the collection of data is of utmost importance, particularly given that the ECBC data is increasingly viewed as the key source of covered bond statistics.
> The Covered Bond Fact Book Working Group, chaired by Mr Wolfgang Kälberer, is responsible for the publication of the annual ECBC Covered Bond Fact Book. This publication covers market developments, as well as legislative frameworks in different countries and statistics.
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> The Rating Agency Approaches Working Group, chaired by Ms Elena Bortolotti, examines the rating approaches applied by credit rating agencies for covered bonds and, when necessary, convenes meetings and publishes position papers accordingly.
> The Global Issues Working Group, chaired by Mr Colin Chen, focuses exclusively on covered bond issues from a global perspective in an effort to create synergies between traditional, new and emerging covered bond markets. The Working Group aims to allow the development of a more level playing field for all at a global level, helping to enhance transparency and convergence, and ensure a proper recognition of the macro prudential value of the covered bond asset class at a global level.
ECBC TASK FORCES
In addition to the afore-mentioned Working Groups, the ECBC has established the following topical Task Forces which consist of related covered bond market and legal experts from various jurisdictions at the EU and global levels: ECBC Task Force on the EU Framework for Covered Bonds, ECBC Task Force on Extendable Maturity Structures, ECBC European Secured Notes (ESN) Task Force, ECBC Transparency Task Force, ECBC Liquidity Task Force, ECBC Swap Task Force and ECBC Brexit Task Force.
Membership of the ECBC continues to grow and its agenda for the coming year is already filled with numerous activities. The ECBC’s objective now is to press ahead in its work with a view to further strengthening its role in facilitating the communication amongst the different covered bonds stakeholders, in working as a catalyst in defining the common features that characterise the asset class and in facilitating improvements in market practices, transparency and liquidity.
More information is available from https://hypo.org/ecbc/
Luca Bertalot, EMF-ECBC Secretary General
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ABECIP
ABN Amro
AIB Mortgage Bank
Aktia Bank plc
Allen & Overy
Asociación de Intermediarios de Activos – AIAF
Association of Danish Mortgage Banks – Realkreditrådet
Association of Swedish Covered Bond Issuers –ASCB
Australian Securitisation Forum (ASF)
AXA Bank Europe SCF
Banca Popolare di Milano – BPM
Banco Comercial Português S.A. (GOH PORTUGAL)
Bank of Ireland Mortgages Bank
Bankia
Banking & Payments Federation Ireland – BPFI / ACS Ireland
Banque Fédérale des Banques Populaires – BPCE
Barclays
Bayerische Landesbank - Bayern LB
Belfius Bank
Berlin-Hannoversche Hypothekenbank AG – Berlin Hyp AG
Bloomberg LP
BNP Paribas
BNP Paribas Fortis
BRFKredit A/S
Caisse de Refinancement de l’Habitat – CRH
Caisse Française de Financement Local – CAFFIL
Caixa Geral de Depósitos S.A.
Canada Mortgage and Housing Corporation – CMHC
Canadian Imperial Bank of Commerce – CIBC
Capital Intelligence Ratings Limited
CHIOMENTI
CITIGROUP Global Markets Germany
Clifford Chance LLP
Commerzbank Securities
Crédit Agricole Corporate and Investment Bank
Crédit Agricole Home Loan SFH
Crédit Foncier de France (département Compagnie de Financement Foncier)
Crédit Mutuel – CIC Home Loan SFH
Crédit Mutuel Arkéa
Credit Suisse
CRIF
Danish Ship Finance
Danske Bank
DBRS Ratings Limited
de Volksbank NV
DealVector
Depfa ACS Bank
Deutsche Bank AG
DLR Kredit A/S
DNB Boligkreditt
Dutch Association of Covered Bond Issuers – DACB
DZ Bank
EAA Covered Bond Bank Plc.
Eika Boligkreditt AS
Euromoney Conferences
European AVM Alliance – EAA
European DataWarehouse GmbH
Fédération des Caisses Desjardins du Québec
Finance Norway – FNO
Fitch Ratings Ltd.
Goldman Sachs
Grupo BBVA
ECBC MEMBERS
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August 2018
Gruppo Banca Carige
HSBC Bank PLC
Hungarian Banking Association
Hypoport / Intertrust
ING Belgium
ING Group
Intesa Sanpaolo
Italian Banking Association – Associazione Bancaria Italiana – ABI
JP Morgan
KBC Bank
Korea Housing Finance Corporation – KHFC
La Banque Postale Home Loan SFH
Landesbank Baden-Württemberg – LBBW
Landesbank Hessen-Thüringen - Helaba
Linklaters Business Services
Lloyds Banking Group
Luxembourg Bankers’ Association – ABBL
mBank Hipoteczny
Moody’s
Münchener Hypothekenbank eG
National Bank of Greece SA – NBG
Nationwide Building Society
Natixis
NatWest Markets
NIBC Bank N.V.
Nomura International Plc.
Norddeutsche Landesbank Girozentrale
Nordea Hypotek
Novo Banco S.A.
Nykredit A/S
OP Mortgage Bank
pbb Deutsche Pfandbriefbank AG
Pfandbrief & Covered Bond Forum Austria
Pfandbriefbank schweizerischer Hypothekarinstitute
PKO Bank Hipoteczny
Rabobank
Realkredit Danmark A/S
Royal Bank of Canada – RBC
S&P Global Ratings
Santander UK Plc.
Scope Ratings GmBH
SEB AG
Société Générale Corporate & Investment Banking
Société Générale Société de Crédit Foncier – SG SCF
Sp Mortgage Bank Plc
Spanish Mortgage Association –
Asociación Hipotecaria Española – AHE
Svenska Handelsbanken – Stadshypotek
Swedbank
TAO Solutions
TD Bank Group
The Association of Banks in Singapore – ABS
The Mortgage Society of Finland
TXS GmbH
UBI Banca
UBS
UK Regulated Covered Bond Council – UKRCBC
UniCredit Group
Valiant Bank
Verband Deutscher Pfandbriefbanken e.V. – vdp
White & Case
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COVERED BOND LABEL
The Covered Bond Label is a quality Label which responds to a market-wide request for common qualitative and quantitative standards and for an enhanced level of transparency and comparability in the European covered bond market. The Label:
> Establishes a clear perimeter for the asset class and highlights the core standards and quality of covered bonds;
> Increases transparency;
> Improves access to information for investors, regulators and other market participants;
> Has the additional objective of improving liquidity in covered bonds;
> Positions the covered bond asset class with respect to regulatory challenges (CRD IV/CRR, Solvency II, redesign of ECB repo rules, etc.).
The Covered Bond Label Foundation (CBLF) was founded by the EMF-ECBC in 2012 and it was developed by the European issuer community, working in close cooperation with investors, regulators, and rating agencies and in consultation with all major stakeholders. The Label website became fully operational in January 2013, with the first Labels being granted since then.
As of August 2018, visitors can find the Harmonised Transparency Template (HTT) and 14 National Transparency Templates, 102 issuer profiles and information on 118 labelled cover pools with issuance data on over 5,000 cov-ered bonds amounting to a total face value of over EUR 1.6 tn. In the first half of 2018, two new jurisdictions, Greece and Poland, joined the Covered Bond Label family thus marking an important step of the Label in provid-ing transparency and standards in upcoming covered bond markets. In this period the Label marked as well a further expansion in the German market as more issuer decided to join.
The Label is based on the Covered Bond Label Convention (the one currently in force is 2018 Label Convention please see below), which defines the core characteristics required for a covered bond programme to qualify for the Label.
The Covered Bond Label Foundation (CBLF) granted the first Non-European Economic Area (non-EEA) Label in 2015. In February 2016, the first non-EEA global issuer published the HTT followed by the first European issuers. Currently, 8 out of 118 pools are from outside the EEA.
> Figure 1: evolution oF labelled Cover Pools
120
100
80
60
40
20
0Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018
Denmark France Spain Sweden UK Finland Germany Ireland Austria Portugal Italy NetherlandsNorway Belgium Canada Singapore Greece Poland
57
7578 79 79 79 79 80 80 82
85 85 8791 91 94
97104
110 111 112116 118
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The HTT is the worldwide standardised, Excel-based form that issuers who have been granted the Covered Bond Label use to disclose information on their covered bond programmes. Definitions and format of the disclosed information are standardised to increase comparability and transparency between issuers and between jurisdic-tions. Standardisation facilitates investors’ due diligence, enhancing overall transparency in the Covered Bond market. The HTT, designed to be fully compliant with Art. 129(7) CRR transparency requirements, undergoes constant review, stirred by the Covered Bond Label Committee and the Covered Bond Label Advisory Council, so to be always up-to-date with regulatory and market requirements. Additional country-specific information on the covered bond programmes can be found in the National Transparency Templates often included in the HTT.
The HTT presents a significant achievement in terms of convergence of market best practices and a substan-tial step forward in enhancing transparency in the covered bond space both in Europe and across the globe. The HTT is a particularly positive step for the market and especially for global investors, who will be able to perform their due diligence activities more easily and obtain issuers’ data ranging from asset and liability side information to legislative details from different countries in a more comparable way.
2018 Covered Bond Label Convention
Covered bonds are debt securities, backed by mortgage, public sector or ship assets, and characterised by a twofold bondholders’ protection mechanism rooted in a dedicated covered bond legal framework.
In more details:
I Legislation safeguards
a) The CB programme is embedded in a dedicated national CB legislation;
b) The bond is issued by -or bondholders otherwise have full recourse, direct or indirect1, to- a credit insti-tution which is subject to public regulation and supervision;
c) The obligations of the credit institution in respect of the cover pool are supervised by public supervisory authorities.
II Security features intrinsic to the CB product
a) Bondholders have a dual claim against:
i. The issuing credit institution as referred to in point I b);
ii. A cover pool of financial assets2 (mortgage, public sector or ship assets), ranking senior to the unse-cured creditors.
b) The credit institution has the ongoing obligation to maintain sufficient assets in the cover pool to satisfy the claims of covered bondholders at all times.
c) Issuers are committed to providing regular information enabling investors to analyse the cover pool, fol-lowing the Harmonised Transparency Template3 and in compliance with the transparency requirements of Article 129(7) of the CRR.
For further information on the Covered Bond Label Convention, visit https://www.coveredbondlabel.com/
1 Including pooling models consisting only of covered bonds issued by credit institutions.
2 The financial assets eligible for the cover pool (including substitution assets and derivative instruments) and their characteristics are defined in the national covered bond legislation which complies with the requirements of Article 52(4) of the UCITS Directive and Article 129 of the CRR, as well as those articles which specify its implementation, including a waiver for the requirement for the issuer to be based in the European Economic Area (EEA), allowing non-EEA LCR compliant covered bonds programmes to be eligible for the Label. Non-EEA Labels will be identified on the Covered Bond Label website in a different graphic solution to EEA Labels.
3 The enhanced Harmonised Transparency Template 2018 entered into force at the end of the first quarter 2018 and is a binding requirement for the granting and renewal of the Covered Bond Label.
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> Figure 2a: Market share Covered bond label by outstanding
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Unite
d King
dom
Gree
ce
Belgi
um
Austr
ia
Germ
any
Italy
Cana
da
Irelan
d
Norw
aySp
ain
Franc
e
Denm
ark
Portu
gal
Finlan
d
Swed
en
Neth
erlan
ds
Polan
d
Singa
pore
Total
Glob
al
Total
EEA
Total
CBL
> Figure 2b: Market share Covered bond label by issuer
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Italy
Austr
ia
Germ
any
Belgi
um
Gree
ce
Norw
ay
Irelan
d
Finlan
dSp
ain
Unite
d King
dom
Polan
d
Cana
da
Portu
gal
Swed
en
Denm
ark
Franc
e
Neth
erlan
ds
Singa
pore
Total
Glob
al
Total
EEA
Total
CBL
The data on the total covered bond market is based on end-2017 values, whereas data on the Covered Bond Label is based on data of July 2018
LABELLED COVER POOLS
AUSTRIAUniCredit Bank Austria AG Credit Public Sector
UniCredit Bank Austria AG Credit Mortgage
BELGIUMBNP Paribas Fortis Mortgage Pandbrieven
CANADACCDQ Covered Bond (Legislative) Guarantor Limited Partnership
RBC Covered Bond Guarantor LP
Scotiabank Covered Bond Guarantor Limited Partnership
TD Legislative Covered Bonds
National Bank of Canada Legislative Covered Bonds
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DENMARKBRFKredit a/s Capital Center E
Danish Ship Finance A/S General Capital Center
Danske Bank A/S Cover Pool D – Denmark
Danske Bank A/S Cover Pool I – International
Danske Bank A/S Cover Pool C – Commercial
DLR Kredit A/S Capital Centre B
Nordea Kredit Realkreditaktieselskab A/S Capital Center 1
Nordea Kredit Realkreditaktieselskab A/S Capital Center 2
Nykredit Realkredit A/S Capital Centre E
Nykredit Realkredit A/S Capital Centre H
Realkredit Danmark A/S Capital Centre S
Realkredit Danmark A/S Capital Centre T
FINLANDDanske Mortgage Bank Plc Pool 1
Nordea Mortgage Bank Finland cover pool
OP Mortgage Bank
Sp Mortgage Bank Plc, SP-01
FRANCEAXA Bank Europe SCF
BNP Paribas Home Loan SFH
BNP Paribas Public Sector SCF
BPCE Home Loan SFH
Caisse de Refinancement de l’Habitat, CRH
Caisse Française de Financement Local
CIF Euromortgage
Compagnie de Financement Foncier
Credit Agricole Home Loan SFH
Credit Agricole Public Sector SCF
Crédit Mutuel – CIC Home Loan SFH
Crédit Mutuel Arkéa Home Loans SFH
Crédit Mutuel Arkéa Public Sector SCF
HSBC SFH (France)
La Banque Postale Home Loan SFH
SG Credit Public Sector SCF
SG Credit Home Loan SFH
GERMANYBerlin Hyp AG BHH Mortgage Pfandbrief
Münchener Hypothekenbank eG MHB Mortgage Pfandbrief
NORD/LB
Deutsche Pfandbriefbank AG pbb Mortgage Pfandbrief
Deutsche Pfandbriefbank AG pbb Public Sector Pfandbrief
UniCredit Bank AG HVB Mortgage
UniCredit Bank AG HVB Public
GREECEAlpha Bank Covered Bond Programme I
IRELANDAIB Mortgage Bank ACS (Asset Covered Securities)
Bank of Ireland Mortgages ACS – (Asset Covered Securities)
ITALYBanca Carige S.p.A. Credit Home/Commercial Loan
Banco Popolare de Milano, Bpm OBG2
Crédit Agricole Cariparma S.p.A. – Cariparma OBG S.r.l.
Intesa Sanpaolo S.p.A. ISP CB Ipotecario S.r.l.
Intesa Sanpaolo S.p.A. ISP CB Pubblico S.r.l.
Intesa Sanpaolo S.p.A. ISP OBG S.r.l.
UniCredit S.p.A. BpC Mortgage s.r.l.
UniCredit S.p.A. OBG srl
NETHERLANDSABN AMRO Bank N.V. Cover Pool
Achmea Bank N.V.
Aegon Bank N.V. Cover Pool
F. van Lanschot Bankiers N.V. Conditional Pass-Through Covered Bond Programme
ING Bank N.V. ING Bank
ING Bank N.V. ING Bank Soft Bullet
NIBC Bank N.V. Conditional Pass-Through Covered Bond Programme
NN Bank Cover Pool
de Volksbank N.V. Volks Covered Bond Company B.V.
Rabobank
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NORWAYDNB Boligkreditt AS mortgage cover pool
Eika Boligkreditt AS (EIKBOL)
Møre Boligkreditt mortgage cover pool
Nordea Eiendomskreditt AS cover pool
SpareBank 1 Boligkreditt (Spabol)
Sparebanken Sør Boligkreditt AS cover pool
Sparebanken Vest Boligkreditt AS
SR-Boligkreditt mortgage cover pool
POLANDmBank Hipoteczny S.A. – Mortgage Cover Pool
PKO Bank Hipoteczny SA
PORTUGALBanco BPI S.A. Mortgage Cover Pool
Banco Comercial Português, S.A. – Residential Mortgages
Banco Santander Totta, S.A.
Caixa Económica Montepio Geral (CPTCB Programme)
Caixa Geral de Depósitos, S.A. Mortgage Cover Pool
NOVO BANCO Conditional Pass-Through Covered Bond Programme
SINGAPOREDBS Bank Limited USD10 billion Global Covered Bond Programme
Oversea-Chinese Banking Corporation Limited
OCBC Limited USD 10b Global Covered Bond Programme
United Overseas Bank Limited USD8 billion Global Covered Bond Programme
SPAINABANCA Corporación Bancaria, S.A.
Banco de Sabadell, S.A.
Banco Popular Español S.A.
Banco Santander S.A. Mortgage Covered Bonds
Bankia Mortgage
Bankinter, S.A.
BBVA Covered Bond Programme
BBVA Public Sector Covered Bond Programme
CaixaBank S.A. Mortgages Loans
CaixaBank S.A. Public Loans
Caja Rural de Navarra, Credit Cooperative
Eurocaja Rural
Ibercaja Banco S.A.
Kutxabank S.A.
Unicaja Banco S.A. Mortgage Covered Bonds
SWEDENLänsförsäkringar Hypotek AB
Nordea Hypotek cover pool
Skandinaviska Enskilda Banken AB SEB Cover Pool
Stadshypotek Finnish pool
Stadshypotek AB (publ) Swedish Pool
Stadshypotek AB (publ) Norwegian Pool
Swedbank Mortgage AB cover pool
The Swedish Covered Bond Corporation
UKClydesdale Bank PLC €10 billion Global Covered Bond Programme
Coventry Building Society 1006
Lloyds Bank plc EUR60bn Global Covered Bond Programme
Nationwide Building Society Covered Bond LLP
National Westminster Bank Plc NatWest Covered Bond Programme
Santander UK plc
Yorkshire Building Society Covered Bonds
Yorkshire Building Society Covered Bonds
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CHAPTER 1 - KEY THEMES OF THE YEAR
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1.1 COVERED BOND HARMONISATION: A MILESTONE REACHED
By Joost Beaumont, ABN AMRO N.V.
Harmonisation of covered bond frameworks has been topping the agenda of authorities and the covered bond community in recent years. In 2018, the journey towards harmonisation reached a new milestone with the European Commission’s (EC) final proposal for a new Covered Bond Directive as well as an update to the regulation regarding covered bonds (i.e. amending Article 129 of the CRR). In this article, we discuss the main details of the EC’s proposals. The following chapter will discuss European Secured Notes, which are likely to be created as new separate funding instrument as well.
HARMONISING LEGAL FRAMEWORKS: THE HISTORY
In recent years, an increasing number of reports, and proposals, have been published on harmonising EU covered bond frameworks. It started in July 2014 when the European Banking Authority (EBA) published its view on the preferential risk weight treatment of covered bonds. The EBA concluded that the preferential risk weight treatment of covered bonds was warranted, but it also noted that more convergence was needed. This in order to increase the safety and robustness of the covered bond instrument which would enhance financial stability as well as safeguard the preferential risk weight treatment. Overall, the EBA identified various areas where convergence of legal frameworks was recommended in the medium to longer term. The key areas were:
1. Dual recourse mechanism
2. Segregation of cover assets
3. Bankruptcy remoteness of covered bonds
4. Cover pool features
5. Valuation of cover assets and LTV limits as well as other requirements on cover assets
6. Coverage principle and legal overcollateralisation
7. Asset and liability risk management
8. Covered bond monitoring
9. Role of supervisor
10. Investor reporting
The EC took the discussion on covered bond harmonisation to another level in 2015, when it published a con-sultation paper on covered bonds in the European Union (EU), which was part of the EC’s action plan to build a Capital Markets Union. In September 2016, the EC decided to request a study on the costs and benefits of introducing a legislative EU framework on covered bonds. This report ‘Covered Bonds in the European Union: Harmonisation of legal frameworks and market behaviours’ was published in May 2017. In the meantime, however, the EBA published a follow-up report in December 2016, which included its recommendations on harmonising covered bond frameworks in the EU.
In this report, the EBA proposed a three-step approach towards harmonisation of covered bonds, taking into account that EU covered bond frameworks differ in particular in regard to legal, regulatory, and supervisory issues, while acknowledging that the final framework should build on the strengths of existing frameworks. This would still leave room for varying national implementation. This was in line with the industry’s preference that any convergence of national frameworks should be principle based.
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Overall, the EBA proposes a three-step approach to harmonisation:
1. Step 1 focusses on the regulatory recognition of covered bonds (i.e. to rewrite UCITs and get to one point of reference of covered bonds for regulatory purposes);
2. Step 2 addresses issues related to the preferential capital treatment of covered bonds (i.e. amending the CRR);
3. Step 3 includes voluntary measures at a national level.
The final proposals of the EC have taken into account all the above-mentioned reports, putting most weight on the recommendations of the EBA. Furthermore, it also took into account a report of the EU Parliament outlining its position on the harmonisation of covered bond frameworks. In fact, the EU Parliament supported the EBA proposals as well.
THE EC PROP