National Bank of Greece is preparing a capital market return, with covered bonds among its options after a reallocation of cover assets, an official at the issuer told The CBR, citing a new issue for the sovereign as being supportive and suggesting a secured deal would be a good first step.

The Hellenic Republic’s Eu3bn five year issue on Tuesday of last week (25 July) attracted some Eu6.5bn of demand and was priced with a yield of 4.625%, down from initial guidance of the 4.875% area. It was the sovereign’s first international bond since April 2014 and was cited as a sign of the progress made by Greece and the Eurozone since the sovereign debt crisis – albeit with demand supported by investors’ hunt for yield.

Earlier, on 30 June, National Bank of Greece had reallocated assets in the cover pools of its two covered bond programmes, improving the credit quality of its Eu15bn conditional pass-through programme (programme II), according to Fitch, which was established in 2010 and from which the issuer has only three retained covered bonds outstanding. The credit quality of NBG’s older, soft bullet programme (programme I) fell.

Apostolos Mantzaris, deputy head of capital markets at National Bank of Greece, told The Covered Bond Report that the move was part of the issuer’s preparations to return to the capital markets.

“The reintroduction of the sovereign to the market is very helpful for Greek banks in general,” he said. “All Greek banks, including NBG, are currently looking at all their available options to return to the markets, and a secured instrument is always a good start when coming out of a crisis like the one the Greek banks have gone through.

“Obviously, we are preparing for everything we can use, be it covered bonds or unsecured issuances.”

NBG issued the only benchmark Greek covered bond to date, a Eu1.5bn issue for NBG in September 2009. The seven year deal, issued out of its Eu10bn soft bullet programme, matured in October 2016.

Since that deal – which was partially bought back by the issuer in 2012 – Greek covered bonds have been used solely for repo purposes.

Mantzaris said it is too early to say when Greek banks might return to the capital markets – adding that the timing would depend on market conditions.

“As we are the only Greek bank to have issued a benchmark covered bond, this gives us a good track record to build on,” he added. “But all Greek banks are looking at retapping the capital markets and all Greek banks have in the past issued retained covered bonds for repo purchases, and I would expect them to look into issuing them for public market access in the future.”

Syndicate bankers agreed that a covered bond would be a sensible choice for Greek banks’ first forays back into the markets, noting that Greek covered bonds survived the country’s crises unscathed.

They said such a deal could be relatively challenging to execute, given the Greek banking sector’s recent troubles and the difficult price discovery that would be required, but were confident it could still be a success based on the sovereign’s reception.

“If I was given a project like this, I would have to think quite deeply about where I would put it in terms of price,” said a syndicate banker. “But I see no big reason why a Greek covered bond would not go well if it pays the right price, given the demand for last week’s sovereign bond.

“After all, it would offer investors diversification and more spread and yield than they are used to, and a covered bond is a covered bond.”

Fitch said on Monday that the reallocation of NBG’s cover assets implied that Eu1.098bn of residential mortgages were transferred from the pool of its soft bullet programme into that of its CPT programme, and Eu856m were transferred vice versa. Furthermore, new assets were segregated by the issuer for an amount of Eu480m for programme I and Eu317m for programme II.

The move had no impact on Fitch’s B- rating of the two programmes, but the credit quality of the cover pool of programme I worsened while the cover pool of programme II improved, prompting the rating agency to revise the programmes’ B- credit losses from 7% to 11.9% and from 14% to 3.2%, respectively.

Following the transfer and the pledge of new assets, the programme I cover pool totalled Eu2.23bn and programme II cover pool Eu1.51bn as of the end of June.