Sweden’s Skandiabanken plans to issue its first covered bond at the end of the month after having turned to the asset class as part of its plans to use the capital markets to diversify its funding sources and support the banks’ growth ambitions, an official told The CBR.

Skandiabanken AB is an internet-based bank that operates in Sweden and Norway. It is a 100% subsidiary of the financial services group Skandia. It has set up two covered bond programmes under Swedish legislation, one backed by Swedish residential mortgage loans and one by Norwegian residential mortgage loans. Moody’s on Thursday assigned triple-A ratings to both programmes.

Fredrik Böhm, deputy head of treasury, Skandiabanken, told The Covered Bond Report that the bank plans to start issuing covered bonds at the end of September, initially with a domestic market issue in Swedish kronor and then a Norwegian krone-denominated deal.

The issuer went on a roadshow in Sweden last week and is meeting investors in Norway this week, and feedback from these roadshows will inform the terms of the first issues, he added.

Covered bonds represent a third pillar of the bank’s new capital markets funding platform, alongside commercial paper and senior unsecured debt, according to Böhm, which the bank has set up to support its growth strategy.

“Up until recently we were solely funded by retail deposits, but the bank’s strategy is to grow in the next five years – to double in size – and to support that growth we need more funding sources,” he said.

“There are also regulatory reasons. Relying on deposits is a risk so we need diversified funding.”

The issuer has a commercial paper programme and senior unsecured debt programme, and started issuing off these in the spring of last year, according to Böhm.

“The last part is the covered bond programmes, in Sweden and Norway, where we are active in equal measure,” he added. “Covered bonds have a clear connection to our underlying business because 95% of our lending is for retail housing finance.”

According to a debt investor presentation covered bonds will be the bank’s primary source of capital market funding, with deposits intended to remain the primary source of financing overall. Deposits from the general public stood at Skr78.978bn (Eu9.03bn) as at the end of the first half of 2013, and total assets at Skr87.94bn.

The presentation lists Danske Bank, Nordea, SEB, Svenska Handelsbanken and Swedbank as dealers for the Swedish mortgage covered bond programme, with DNB Nor joining the line-up for the Norwegian programme.

Skandiabanken has not yet decided on the volume and frequency of its covered bond issuance, but will issue on a regular, tap basis, according to Böhm.