Covered Bonds : Polish Covered Bond framework

Polish covered bond market: With a total Euro benchmark outstanding of €2.5bn, the Polish market is a merging covered bond market. Only one bank is issuing euro benchmark deals (PKO Bank Hipoteczny ). However, mBank Hipoteczny also came to the market with sub-benchmark deals. Polish covered bond law: The covered bond and mortgage banks in Poland are regulated by the Polish Covered Bond Act, the Banking Law and the Bankruptcy law. The covered bond law has been amended in 2015 to change the standards for determining mortgage-lending value and the rules on keeping and managing cover registers. European Covered Bond Directive and Amendment of the article 129 of the CRR: The Polish legal framework needs some adjustments to be in line with EU Covered Bond law such as the frequency of di sclosure of the investor report and the use of derivatives. LTV limits: A 80% maximum LTV is applied for Residential mortgage loans and a 60% maximum LTV is applied for Commercial mortgage loans . Minimum OC: The Polish legal framework requires OC of at least 10% on a nominal basis. Coverage t est: The coverage test verifies whether the value of assets in a cover pool allows for full satisfaction of all claims under outstanding covered bonds. The coverage test must be performed every six months. Liquidity test: The law requires issuers to maintain a reserve covering six months’ interest and the liquidity test assesses coverage of principal and interest liabilities over 6 and 12-month horizons. The liquidity test must be performed at least every three months. Cover pool monitor: A Cover pool monitor must be appointed by the KNF , the Polish financial supervision authority at the request of the supervisory board. He must perform an ongoing control of the appropriateness of the management of the mortgage cover register. In case of insolvency, the maturity of the covered bonds is automatically extended by another 12 months. Within three months after the declaration of bankruptcy, the insolvency administrator must perform a coverage test. If the coverage balance test is positive, the liquidity test must be performed. If both tests are positive, there is a Soft B ullet option. If one of the tests fails, the covered bonds may switch to a Conditional Pass Through format. This report aims to provide at first an outlook of the Polish covered bond framework and then an overview of the Polish covered bond market.