Principality Building Society is planning to join its larger peers and enter the covered bond market with the establishment of a new €5bn (£4.37bn) programme this year, as it exits the TFSME and following prior residential mortgage-backed securities issuance.

The Wales-centred building society’s intention to issue covered bonds backed by residential mortgages were flagged in a senior management attestation dated 22 September (Monday) and posted to the Regulated Covered Bonds Register on the Financial Conduct Authority (FCA) website.

Principality’s plans were earlier mentioned in its half year report, last month.

“Total assets have remained flat at £14.1bn (31 December 2024: £14.1bn),” it said, “this is due to reductions in liquid assets following the repayment of £250m TFSME liability, a final £300m to be paid prior to 21 October 2025, and utilisation of our cash reserves held with the Bank of England ahead of the inaugural covered bond programme in the second half of 2025, offset by further growth in retail and commercial mortgages.”

Principality is the sixth largest UK building society by assets, with its five larger peers all already active in the covered bond market.

It has previously issued RMBS off its Friary platform, including £706.5m Friary No. 9 in April 2024.

The building society’s senior preferred ratings are Baa1/A- from Moody’s and Fitch.

Moody’s changed the outlook on Principality’s Baa1 long term deposit rating from stable to positive in June, citing expectations of continued strong performance in the subsequent 12-18 months as decreasing interest rates support its asset quality while profitability stabilises at its prevailing level.

The rating agency noted in its overall rating rationale that although Principality’s reliance on market funding is comparable to peers, it is less diversified.

Like many other large and small UK financial institutions, the building society set up a covered bond programme in the wake of the global financial crisis in conjunction with the Bank of England’s Special Liquidity Scheme (SLS), in its case a €3bn programme in 2009. This was not a Regulated Covered Bond programme and a £700m deal issued off it is understood to have been cancelled in 2011.

Image: Principality Building Society/Facebook