HSH Nordbank’s head of strategic treasury confirmed to The Covered Bond Report that it will be able to use SME loans guaranteed by Kreditanstalt für Wiederaufbau in its public sector cover pool, as reported on Monday after Moody’s rated a KfW Promise transaction.

The Promise Neo 2012-1 transaction enables HSH Nordbank to diversify its funding sources for SME loans by making them eligible as Pfandbrief collateral, with Eu925m of loans guaranteed by KfW set to be added to HSH Nordbank’s public sector cover pool. Under the transaction HSH Nordbank is receiving credit protection of SME loans from KfW.

“The Promise transaction allows HSH Nordbank to diversify its funding base for SME lending,” said Mark Bussmann, head of strategic treasury at HSH Nordbank. “As a result of the transaction SME loans can be used as collateral in our public sector pool and can thereby be refinanced via Pfandbriefe.”

Asked about structured covered bonds, Bussmann contrasted their contractual nature and quality with the nuanced legislative foundation of the German Pfandbrief, which is based on high quality standards and a well-established liquid market.

“A structured covered bond could, depending on market developments and whether it establishes itself as a standard product of high quality, become an interesting issuance format for HSH Nordbank,” Bussmann added.

HSH Nordbank has a broad diversification of refinancing sources, according to Bussmann, including excellent access to the German Savings Banks Finance Group and their retail clients, and as an established Pfandbrief issuer with three cover pools.

“Nonetheless, we follow with interest market discussions such as those around structured covered bonds,” he said.