VÚB issued the largest Slovakian covered bond yesterday (Wednesday), a Eu250m privately placed deal, and could sell further sub-benchmark deals publicly in future, according to an official at the bank. Work is underway on changes to the Slovak framework, with a draft law expected soon.

Prior to the deal, the largest Slovak covered bonds were Eu100m issues. Due in part to regulatory constraints, the Slovak market has remained small. VÚB banka – which is majority owned by Intesa Sanpaolo – is the largest issuer, with Eu1.67bn of covered bonds outstanding as of 30 September.

The Eu250m seven year issue was priced yesterday with a coupon of 0.5%.

An official at VÚB told The Covered Bond Report that the bank plans to issue further sub-benchmarks in the future.

“The terms of the further issues – the type of the auction, etc – will depend on the conditions on the markets in the time of the issue,” she said.

Some Eu49m of the private placement was bought by the European Bank for Reconstruction & Development (EBRD), kicking off a new Eu200m investment programme into Slovak mortgage covered bonds.

“We are very proud to launch this innovative and important programme today,” said Lucyna Stańczak-Wuczyńska, EBRD director of financial Institutions and EU banks. “It underlines the contribution the EBRD can still make in an advanced economy like the Slovak Republic.

“Strengthening the capital market will benefit the Slovak banking sector by contributing to its resiliency and will ultimately facilitate sustainable financial intermediation in the country.”

Alexander Resch, CEO of VÚB, said the funding provided by the deal will help the bank grow its mortgage book and strengthen its funding structure.

“I am very happy that the EBRD have chosen VÚB for its first investment into covered bonds issued by a Slovak bank,” he said.

The EBRD added that it has begun working with the Slovak Ministry of Finance on updating the country’s covered bond framework. Changes have been proposed to the Slovak law to ease the idiosyncratic constraints on issuance and allow banks to more easily issue larger deals that can achieve preferential treatment as Level 2 assets under LCR – for which they must be sized at least Eu250m.

A new draft law is expected soon, according to the EBRD.

Photo: VÚB