Valiant Bank aims to issue its first covered bonds in the fourth quarter, targeting an issue of at least Sfr150m. The Swiss bank said its new mortgage-backed programme will provide a broader funding base and allow it to take advantage of low rates and spreads.

Valiant announced its plans to enter the covered bond market last year, becoming the first Swiss bank outside the country’s big two, UBS and Credit Suisse, to do so, and as they wind down their programmes.

When announcing its first half results today (Thursday), the retail and SME bank said it will issue its first deal in the fourth quarter, with a minimum size of Sfr150m (Eu132m).

According to Valiant, the programme will be the first Swiss covered bond programme under Swiss law, has a Swiss guarantor – Valiant Hypotheken AG, established in June – and will be backed by residential mortgages. As of 30 June, Valiant had Sfr16.1bn residential mortgages on its balance sheet.

Valiant cited covered bonds’ cost-effectiveness versus unsecured bonds and said the issuance of covered bonds will “provide a broader basis for funding Valiant’s mortgages and SME loans” and help it reduce costs, allowing the bank to take advantage of low interest rates and spreads. The bank is planning to reduce unsecured issuance.

It added that its covered bonds are most likely to attract institutional investors, and that private placements will be possible.

Valiant’s debut will represent a revival of the Swiss market, as UBS and Credit Suisse have both discontinued issuance off their contractual/structured programmes, which were used for international issuance.

Domestic covered bond issuance has continued through Switzerland’s two central issuing institutions, Pfandbriefzentrale der schweizerischen Kantonalbanken and Pfandbriefbank schweizerischer Hypothekarinstitute, who are the only entities that issue according to Swiss legislation and through which banks can refinance their mortgages.

Valiant Bank has funded part of its mortgage lending through the Pfandbriefbank and said its new programme will complement continued use of Swiss Pfandbriefe.