The European Bank for Reconstruction & Development (EBRD) kicked off a plan to invest HUF40bn (Eu130m) in the covered bonds of Hungary’s OTP Mortgage Bank yesterday (Wednesday), with the aim of supporting a strengthening of Hungarian banks’ balance sheets and the country’s capital markets.

The EBRD yesterday bought a HUF4bn share of an OTP Mortgage Bank covered bond on the Budapest Stock Exchange and announced that it intends to invest a total of up to HUF40bn in listed OTP covered bonds over a three year period. It said the exact size of its investment in each placement will be adapted according to market demand and scaled down in the event a bond is oversubscribed.

“We are very proud to become an investor in OTP Mortgage Bank covered bonds and thus to expand our investment in covered bonds to Hungary,” said Lucyna Stańczak-Wuczyńska, director in the EBRD’s financial institutions group. “We believe it will allow us to contribute to the strengthening of the banking sector’s balance sheet maturities structure and to widen the local capital and currency markets in the country.

“We would like to remain an active investor, cooperating with stakeholders in the Hungarian capital market.”

An official at the EBRD told The Covered Bond Report that its investment in Hungarian covered bonds will for now be limited to those of OTP.

OTP Mortgage Bank is the specialist mortgage subsidiary of OTP Bank, Hungary’s largest bank. It is one of the county’s three long-standing covered bond issuers, having been established in 2001, alongside the mortgage subsidiary of UniCredit Bank Hungary and FHB Mortgage Bank, a standalone issuer.

András Becsei, CEO of OTP Mortgage Bank, welcomed the investment and said the issuer considers the EBRD’s participation “an acknowledgment of our prudent business model”.

The EBRD has similarly invested in covered bonds from Poland, Turkey and Slovakia, while also working with local authorities in certain countries to support legislative reforms that would bring developing covered bond markets into line with best market standards.

Having peaked in size in 2009, the Hungarian covered bond market shrunk in each consecutive year to stand at Eu3.02bn as of the end of 2015. However, it is expected to grow rapidly in the coming years in response to new NSFR-style regulation implemented by the Hungarian National Bank (MNB), which anticipates the issuance of around HUF600bn (Eu1.95bn) of covered bonds by mid-2018.

The MNB announced in June 2015 that it would as of 1 April 2017 require banks to fund at least 15% of their residential mortgage loans through long term liabilities, under the Mortgage Funding Adequacy Ratio (MFAR). In December, the MNB said that as of 1 October 2018 this requirement will be raised to 20%, while also increasing the required minimum maturity of eligible bonds from one year to two years.

Photo credit: Nyar94/Wikimedia Commons