Erste Hungary mortgage arm launches HUF 200 bln mortgage-backed bond program

MNB

Erste Mortgage Bank will launch a HUF 200 billion mortgage-backed bond program in order to meet Mortgage Loan Financing Adequacy Ratio criteria, Erste Bank Hungary said yesterday (Wednesday), according to state news wire MTI.

Banks have until April 1, 2017 to comply with the requirement set by a June 2015 decree from the National Bank of Hungary (MNB) to back at least 15% of their net mortgage loans with long-term liabilities. Financial institutions with less than HUF 3 bln retail mortgage loan stock – considered to be non-significant players in the segment – are exempt from the requirement. 

Erste Mortgage Bank plans to issue forint denominated mortgage-backed bonds through open stock exchange auctions under the program. The MNB permission it holds allows for issues both on the regulated and OTC markets.

Erste expects that uptake of the bonds will come mainly from domestic institutional investors and other banks. It plans to sign market-making contracts to improve the liquidity of longer series on the secondary market.

The MNB decided to introduce a 15% Mortgage Loan Financing Adequacy Ratio to mitigate the mismatch in maturities of forint mortgages, which have runs of ten years or more, and the banking sector’s forint liabilities, which typically mature within one year, in the spring of 2015. The gap significantly widened after the conversion of banks’ FX retail mortgages into HUF in that year.

Erste Mortage Bank received its permit to operate from MNB in June, and in doing so became the first mortgage bank founded in Hungary in many years. It was registered with an initial capital of HUF 3.9 bln last December.

The amended regulations prompted several banks to set up their own mortgage arm. MKB Bank, 99% owned by MKB and 1% by Granit Bank, was registered on June 13 and is expected to start operations in Q4.

K&H Bank is in the process of setting up its mortgage unit, the bank said in response to an MTI question. Deputy CEO Ágnes Bába earlier told MTI that the mortgage arm, to be set up at a cost of up to HUF 1 bln, would issue HUF 50-90 bln bonds backed by its mortgages.    

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