PKO Bank Hipoteczny could in the second half of 2016 issue the first foreign currency benchmark covered bond from Poland following an update of the country’s covered bond legislation, it indicated yesterday (Monday). Fitch has meanwhile upgraded the covered bonds of peer mBank.

PKO Bank Hipoteczny, the mortgage bank of PKO Bank Polski, said in a presentation of its 2015 results that it plans to launch a benchmark zloty-denominated issue in the second quarter of 2016, before launching a benchmark issue of covered bonds in a foreign currency in the second half of the year.

This comes after issuer in December sold a Pln30m (Eu6.93m) five year pilot covered bond issue, after having launched its programme in November.

Amendments to Poland’s covered bond legislation took effect on 1 January, introducing maturity extensions and conditional pass-through techniques, among other revisions. The implementation of the law has been expected to boost Polish covered bond issuance.

Fitch yesterday (Monday) afternoon upgraded the mortgage and public sector covered bonds of mBank Hipoteczny from BBB to BBB+.

The rating agency said the upgrade of the programmes was mainly driven by an upgrade of the bank’s Issuer Default Rating (IDR) to BBB yesterday, on the back of an upgrade to mBank owner Commerzbank, and the legal minimum overcollateralisation (OC) of 10% that it takes into account.

The outlook for the mortgage programme remains on Rating Watch Positive, reflecting Fitch’s expectation that the bank’s performance data will enable it to conduct a full and robust analysis, and that this, combined with Poland’s amended covered bond legislation, means there is potential for an upgrade.

However, Fitch added that it expects the foreign exchange (FX) exposure in the mortgage programme will limit the number of notches of upgrade for the ratings. Fitch said it expects to complete the review of the Rating Watch Positive in early the second quarter.

The public sector programme is on stable outlook, mirroring that of mBank’s IDR, Fitch said, as the rating agency does not expect to be provided with data that would allow it to rate the bonds beyond the application of the limited rating uplift.