The Capital Markets Board of Turkey published a communiqué on covered bonds today (Tuesday), and the CMB told The CBR about its main features, including an issuance limit, and new issuer and cover pool eligibility categories and criteria.

An English language version of the notice is not yet available, but is due to be released soon, according to the Capital Markets Board (CMB), which outlined the main features of the new regulation to The Covered Bond Report.

As anticipated, the notice merges secondary legislation on asset and mortgage covered bonds. According to the CMB, it ties in with a new capital markets law that was enacted by the Turkish parliament on 30 December.

“With the new regulation, CMB aims to create and develop a Turkish mortgage covered bond market as well as strengthening the regulatory framework for Turkish asset covered bonds in line with the provisions of the new Capital Markets Law,” said the regulator. “The Capital Markets Board of Turkey is of the view that the availability of different capital market instruments is vital for creating robust capital markets.

“For that reason, it is important to effectively develop the Turkish covered bond market.”

Turkish banks have issued SME backed covered bonds, albeit typically as private placements sold to multinational development corporations, and several have been preparing to issue mortgage backed covered bonds.

In an e-mail to The Covered Bond Report, the CMB set out the main features of the communiqué:

• An issuance limit has been introduced to protect interests of unsecured debt holders of a covered bond issuer. The issuance limit is set at 10% of the total assets of the issuer. The limit for mortgage finance corporations is set as five times its equity. Should the issuer have a prime, high grade or an upper medium grade credit rating, this limit can be increased to 20% of total assets or 10 times the equity of a mortgage finance corporation.

• Leasing companies and finance companies shall now be able to issue mortgage covered bonds.

• The eligibility criteria for cover pools of mortgage covered bonds have been redefined in order to better reflect primary mortgage originations. This will increase the cover pool base for mortgage covered bonds while maintaining asset quality.

• Derivatives used for hedging risks can now be a part of the cover pool of asset covered bonds.

• Stress testing is required when the type of currency or interest (fixed, floating) is mismatched between the cover pool and the covered bond. Minimum mandatory overcollateralisation rates have been reset in line with international practices.

• New provisions were introduced in protecting the flow of funds from the cover pool to the covered bond investors in case the issuer cannot meet its obligations on the covered bond.