UniCredit Bank Czech Republic & Slovakia could issue its first euro benchmark covered bond next year, according to an official at the bank, even though “obstacle number one” may take longer to remove as progress towards updating the Czech legal framework takes time.

UniCredit Bank Czech Republic & Slovakia (UCS) sold its first Eurobond format covered bond in December 2013, a Eu800m five year issue from an EMTN programme, and then sold its first and to date only publicly placed euro deal in April 2015, a Eu250m five year. Raiffeisenbank a.s. launched the first benchmark-style euro covered bond from the country in October 2014, a Eu500m five year deal, half of which was retained.

Speaking at the 20th Central European Covered Bond Conference – organised by HypoVereinsbank and the Association of German Pfandbrief Banks (vdp) – in Munich on Friday of last week, Libor Ondrich, head of assets and liabilities management at UniCredit Bank Czech Republic & Slovakia, said the issuer had initially planned to return to the market more frequently.

“We had advertised that we would come to the market regularly with sub-benchmark issues,” he said. “However, we changed our approach a little bit because we have also had access to the second series of TLTROs from the ECB via our Slovak branch, and why issue at plus 40bp when we can perhaps get minus 40bp all-in?

“But we would like to come to the market in 2017, depending on other transactions that we also have in the pipeline and whether they get executed or not.”

Ondrich said that the potential deal could be UCS’s first euro benchmark. He noted that the Czech bank had held long discussions over the size of its debut issue, eventually deciding on a sub-benchmark to avoid concentration risk, but said it now has more room for issuance after acquiring mortgage collateral from its former Slovak sister bank.

UniCredit Bank Czech Republic merged with UniCredit Bank Slovakia in December 2013, with the latter ceasing to exist and the former taking responsibility for banking activities in Slovakia through a foreign bank branch under the new combined name.

“Now with the Slovakian assets on our balance sheet and also taking into consideration the sharply growing Czech and Slovak economies, I scent the potential for a benchmark size,” said Ondrich. “It is just a question of the final spread indication and also whether we will also be able to exploit other funding sources, like supranationals, or not.

“The European Investment Bank, given the Juncker Plan, has withdrawn from providing traditional funding loans, so we have to replace that somehow. I see the covered bond as a potential replacement source.”

While noting that the obstacle of the bank’s limited funding capacity had been partly addressed by the acquisition of Slovak assets, Ondrich said that the main obstacle to issuance remains the Czech Republic’s covered bond framework.

He noted that the current framework has certain features that are unpopular with investors, such as the possible acceleration of covered bonds in the event of issuer insolvency, and that proposed changes that would address such issues have been delayed.

“We have been trying to change the framework for the last three years,” he said. “The updated legal framework is now with the government for comments, and we hope it will pass through the parliament.

“The new framework should remove obstacle number one, which is the outcome of the acceleration of the covered bonds.”

However, Ondrich noted that elections will be held in the Czech Republic next year, and said that the new legal framework is not expected to take effect until 1 January 2018.