Alpha Bank Romania issued the first Romanian covered bond last week, a EUR200m five-year FRN supported by the EBRD and IFC as well as a mix of domestic and international accounts. Its executive president told The CBR he expects other Romanian banks to follow, given the instrument’s advantages.

The Romanian subsidiary of Greece’s Alpha Bank said in December that it was preparing a EUR1bn residential mortgage-backed programme. It announced on Tuesday of last week (14 May) that it had completed the inaugural issue, with Barclays as lead manager and Alpha Finance Romania as co-manager for the EUR200m (RON953m) five-year FRN with a coupon of six-month Euribor plus 150bp.

The deal is the first covered bond from Romania, which updated its covered bond law in 2015-2016, after no issuance had occurred under legislation initially introduced in 2006.

Embarking on a newly enabled covered bond programme fit with the bank’s pioneering track record in the Romanian market, according to Sergiu Oprescu, executive president of Alpha Bank Romania and member of the Alpha Bank group executive committee.

“Alpha Bank Romania was the first bank to open up the mortgage market in Romania,” he told The CBR. “We granted the first mortgage loan in Romania and it was natural for us to look into more innovative ways of financing the growth in mortgage lending.”

“In addition to that, such an instrument allows us to address the mismatch in maturities that our Romanian market otherwise has, because the market finances mortgage portfolios through short term deposits.”

Periklis Voulgaris, executive vice president, Alpha Bank Romania, said the update to the legislation also coincided with the issuer’s strategy at that time of diversifying its funding sources – until then it had been relying primarily on parent funding.

“We took a series of initiatives and covered bonds was one of these,” he added, “with the introduction of a workable framework allowing Romanian issuers to look at this instrument.”

Romania is the first country to enter the covered bond market since the finalisation of the EU legislative covered bond package last month, and Oprescu said the timing of its entry stands the jurisdiction in good stead.

“The legislation from 2006 was not well accepted by the market, so at the beginning of 2014 the Romanian Association of Banks started an initiative to amend it in order to bring it more into line with European legislation on covered bond issues,” he said. “This was good timing, because we had the benefit of having the European Banking Authority guidelines, and we could incorporate these into the changes to our legislation. This means that at this moment the Romanian legislation is probably one of the most progressive and up to date.

“As a result of this, I don’t think the Romanian market will have to make many amendments when the EU Directive comes into force.”

Oprescu (pictured) acknowledged that launch of the first Romanian covered bond shortly after the completion of the legislative package under the Romanian presidency of the EU was somewhat serendipitous.

“Eighteen years ago, when we launched the mortgage market and started to look at this subject, or four years ago when we started amending the legislation, I don’t think we could have foreseen such an alignment,” he said.

The European Bank for Reconstruction & Development (EBRD) and IFC took almost half of the inaugural issue (EUR40m and EUR50m, respectively).

“Besides the EBRD and IFC, we attracted a lot of interest from both international and local investors and other supra-nationals,” said Voulgaris, “so it was very difficult exercise to manage the allocations in way that wouldn’t make many investors unhappy.

“Since this is the first ever deal from Romania, there was a lot of interest in this new product,” he added, “not only from outside Romania, but also within, and we managed to attract interest from institutional investors, pension funds, asset management companies and commercial banks, thanks to the merits of this new instrument.”

Alpha Bank Romania’s covered bonds are rated Baa2, one notch higher than Moody’s sovereign rating of Baa3.

Voulgaris said EUR200m was the optimal size for Alpha Bank Romania and it has scope for further issuance under its EUR1bn programme, although does not anticipate further issuance this year.

Market participants hope the market will now broaden.

“Given that Alpha has taken the initiative and opened up the covered bond market in Romania, I am very sure that some other banks are going to follow,” said Oprescu, “particularly because this is a very good way of mitigating the maturity mismatch in funding across the mortgage market.”

Lucyna Stanczak-Wuczynska, director for EU banks at the EBRD – which participated in the work on updating the country’s framework – was also positive.

“We hope that with an enabling legislative framework, and following Alpha Bank’s success, other Romanian lenders will follow suit,” he said. “More of such issuances will further strengthen Romania’s banking system, support lending growth and strengthen financial intermediation.”