Cyprus could get first test as Marfin eyes debut
The first covered bonds from Cyprus are being prepared following the completion of the country’s legislative framework in December, and Marfin Popular Bank is set to launch a debut issue off a Eu2bn programme.
Moody’s said when the law was passed that that the new Cypriot law would be credit positive for the country’s banks.
“It would enhance their contingency liquidity tools and/or increase their eligible collateral with the European Central Bank,” it said. “The covered bond law also opens up alternative funding sources, broadening the potential investor base for Cypriot banks given the typically lower credit risk of covered bonds.”
The rating agency estimated the potential of the Cypriot covered bond market as Eu4bn.
Previously the Marfin group has issued Greek law covered bonds backed by residential mortgages through its Greek subsidiary, Marfin Egnatia Bank. However, later this month or in early April Marfin Popular Bank expects to take advantage of the Cypriot legal framework for the first time.
- Dimitrios Spathakis, Marfin Popular
“We have experience utilising the Greek assets using the Greek law and it’s a very good opportunity for us now to use the Cypriot law,” Dimitrios Spathakis, Marfin Egnatia bank deputy head of wholesale funding, told The Covered Bond Report.
“Our view is that the law is very strong and it will facilitate us in going to the market”, he added. “There is a more positive outlook towards Cypriot as compared with Greek banks.”
The bank plans to have two separate programmes, with one comprising Cypriot assets and the other mainly using Greek assets. It plans to enter the market with residential mortgages and gradually move to commercial assets and eventually to a shipping portfolio, which Spathakis acknowledges is “the most challenging one of all”.
Barclays Capital and BNP Paribas are understood to be close to Marfin’s plans.
The Cypriot covered bond law and a related directive of the Central Bank of Cyprus came into effect in December. An official who worked on the legislation said nothing now hinders banks launching covered bond programmes.
“There are some minor amendments to existing laws that have been prepared and these are in the process of being reviewed and they will be sent to parliament,” he said, “but they do not need to be in place before a bank may issue a covered bond.
“All major Cyprus banks were involved in the making of the law and the directive and all major banks have mentioned their intention to issue covered bonds,” he added.
The Central Bank of Cyprus, the Ministry of Finance and the Association for Cyprus Banks and all its members worked closely together on the project.
“Now the legal and regulatory framework is in place, it is up to each individual bank to go ahead with its issuing,” said Christina Antoniou Pierides, senior officer at the Association of Cyprus Banks.
Marfin Popular Bank was last week downgraded from Baa2 to Baa3 by Moody’s, on negative outlook. This is the same rating as its Marfin Egnatia subsidiary, with the Greek arm due to be merged into the Cypriot parent at the end of this month. The cut followed a downgrade of Cyprus’s rating, from Aa3 to A2, while Bank of Cyprus was cut from A3 to Baa2 and Hellenic Bank from Baa2 to Ba1.
Marfin Egnatia’s covered bond programme is rated A3 but was placed on review for downgrade by Moody’s in December alongside several other Greek programmes after the rating agency took action on the sovereign and their sponsor banks.
