An ABN Amro fixed income strategist has identified three Dutch banks for whom he says conditional pass-through covered bonds could be an attractive funding option, with Achmea cited as the issuer most likely to make a move in the near term.

The Netherlands’ NIBC Bank launched a ground-breaking Eu500m five year conditional pass-through covered bond on Tuesday of last week (2 October), and several market participants are reporting that interest in the structure among other issuers is high, or at least should be, given benefits such as higher and more stable programme ratings on the back of lower overcollateralisation.

In a report published yesterday (Tuesday), Joost Beaumont, fixed income strategist at ABN Amro, focussed on the Dutch market in assessing the prospect of other issuers following in NIBC’s footsteps. He said that the conditional pass-through (CPT) covered bond launched by NIBC introduces a new funding tool that could make sense for issuers with somewhat lower credit quality.

Conditional pass-through covered bonds would make sense for several Dutch banks, he said, suggesting that Achmea Mortgage Bank (Hypotheekbank) would be most likely to move relatively soon.

“We expect that Achmea Hypotheekbank will start issuing CPT covered bonds in the near future,” said Beaumont, giving February 2014, when its last outstanding euro-denominated issue matures, as the time by which he expects the issuer to have switched to a pass-through covered bond programme.

Achmea Mortgage Bank’s existing, conventional bullet, covered bond programme is not registered with the Dutch central bank and does not fulfil UCITS or the Capital Requirements Directive (CRD), and Beaumont noted that switching to a pass-through covered bond programme would give the issuer the advantage of having it registered with the Dutch central bank, which would broaden the issuer’s investor base.

“Meanwhile, funding cost will also be significantly lower than that of RMBS notes, as we estimate a five year CPT covered bond to be priced around mid-swaps plus high 30s,” he said.

This would be substantially lower than what Achmea had to pay in July for five year RMBS notes, he added, which were priced at an equivalent of mid-swaps plus the mid-70s.

Another banker said that if there were to be another Dutch bank moving to sell conditional pass-through covered bonds then Achmea would be a prime candidate, although it already has a fair amount of assets securitised, he added.

Achmea did not respond to queries from The Covered Bond Report by the time of publication. It has not issued any publicly placed covered bonds since October 2007, according to Barclays analysts.

Other good Dutch candidates for conditional pass-through issuance are SNS Bank and Van Lanschot, according to Beaumont, although this would be more in the medium term.

SNS, which was nationalised by the Dutch government in February after being dragged down by problems in its property finance portfolio, cannot issue off its existing covered bond programme at the moment because it is rated below a minimum level required by the Dutch central bank (AA-/Aa3), according to Beaumont.

SNS covered bonds are rated AA+ by Fitch and A1 by Moody’s. The issuer is rated BBB by S&P, BBB+ by Fitch and Baa3 by Moody’s.

Another banker said that the minimum rating requirement from the Dutch central bank is of a soft nature, like its cap on asset encumbrance, and that the rating can also be based on an internal assessment by the central bank.

Other arguments for why CPT covered bonds are “an interesting option” for SNS, said Beaumont, are that the bank has a relatively high loan-to-deposit ratio, and that covered bonds account for 7% of its total funding with total refinancing needs (excluding interest) amounting to around Eu5bn in 2014 and some Eu3bn in 2015, based on Bloomberg data.

However, he noted that SNS still has four benchmarks outstanding under its existing, bullet covered bond programme, and that the issuer and its covered bonds will probably be upgraded when there is more clarity about the bank’s future structure, so that the issuer “is unlikely to switch in the near term”.

“Although we think it will eventually be attractive to switch, we do not see this happening until late 2014 or beyond,” said Beaumont.

SNS declined to comment.

Beaumont said that there is a case to be made for expecting Van Lanschot to turn to conditional pass-through covered bonds, although there are also counterarguments, such as a triple-A rating probably being obtainable if the issuer were to set up a conventional covered bond programme. Van Lanschot does not issue conventional covered bonds.

“It has roughly the same amount of mortgages on its balance sheet as NIBC, but it has a stronger credit rating, so a five year CPT covered bond of Van Lanschot should price below that of NIBC (all else equal),” he said. “We think that Van Lanschot will be in no hurry to enter the market, but if it does, next year seems most likely.”

Van Lanschot declined to comment.

Beaumont also said that Rabobank could be expected to begin issuing conventional covered bonds given that this would lower its funding costs and increase diversification, and that the bank has relatively low asset encumbrance and its rating was recently downgraded.

However, an official at Rabobank told The CBR that Rabobank “will not enter the regular covered bond market”.