mBank Hipoteczny today (Friday) signed up to the Covered Bond Label, as part of preparations for eventual international issuance. Its move comes soon after internationally-established compatriot PKO Bank Hipoteczny became the first CEE issuer to commit to the Label.

PKO Bank Hipoteczny’s signing up to the Covered Bond Label was announced on 5 February.

“PKO Bank Hipoteczny, as the leader of the mortgage banks market in Poland, is already present on the European market and takes the next step towards strengthening our relationship with investors,” said Jakub Niesluchowski, deputy CEO of PKO Bank Hipoteczny. “Now we have confirmed again our commitment to the highest standards of transparency and assurance of providing to investors accurate and up-to-date information.”

The issuer was the 97th to sign up to the Label, but the first from Poland and from central and eastern Europe.

“The successful development of the covered bond market in Poland and the publication of the first Eastern European Harmonised Transparency Templates (HTTs) represents a significant step forward towards the implementation of the Capital Markets Union,” said Luca Bertalot, EMF-ECBC secretary general and Covered Bond Label administrator.

PKO Bank Hipoteczny was the first Polish issuer to sell a euro benchmark covered bond, inaugurating the market in October 2016. It remains the only Polish issuer to have sold euro benchmarks to date.

The signing up of mBank Hipoteczny to the Label was announced today.

“mBank Hipoteczny, as a mortgage covered bond issuer with the longest history on the Polish capital market, joins the Covered Bond Label in order to strengthen the established relationship with international investors and confirm our full commitment to comply with standards of transparency by implementing the HTT,” said Piotr Cyburt, CEO of mBank Hipoteczny.

mBank Hipoteczny was the first specialist mortgage bank active in the Polish market, issuing its inaugural deal in June 2000. To date, it has only issued covered bonds domestically.

Krzysztof Dubejko, head of treasury at mBank Hipoteczny, told The CBR that the issuer signed up to the Label as part of its preparations for an eventual international covered bond issuance.

As previously reported, mBank Hipoteczny established a new Eu3bn international covered bond programme in July, but has been prevented from issuing internationally because of a ruling from Poland’s tax authorities.

Poland has in place a 20% withholding tax on interest payments transferred out of the country. When Poland’s covered bond law was updated in January 2016, interest paid for Polish covered bonds to non-domestic investors, both individuals and legal entities, was made exempt from this tax.

However, acting upon independent legal advice, mBank requested an individual interpretation from the Polish tax authorities regarding the rules. In their response, the tax authorities stated that the exemption to the withholding tax can only be applied once mBank Hipoteczny, as issuer and tax remittent, has identified the tax status of the bondholder. mBank has said it is unable to do so, as investors in the bonds would be anonymous and the bonds could be sold on secondary markets.

“The ministry of finance and Polish mortgage banks are discussing several solutions to this problem, among them a general tax interpretation and proposal of alternative issuance tax,” said Dubejko. “However, until this case is officially finalised, mBank Hipoteczny will refrain from issuing directly in foreign markets.

“We still maintain our capacity, in terms of programme documentation and available collateral, to tap the market as soon as the tax issue finds its solution. Joining the Covered Bond Label and publishing cover pool transparency data in a recognised format also proves our determination to join the club of international covered bond issuers.”