Eika Boligkreditt ups capital targets on new regulatory requirements

Apr 11th, 2013

Eika Boligkreditt has responded to stricter capital requirements proposed by the country’s ministry of finance by increasing its capital targets, in relation to which it will seek approval to issue up to Nkr600m of new subordinated debt, it announced today (Thursday).

The covered bond issuer has left its Core Tier 1 capital ratio at 9%, but introduced a Tier 1 capital ratio target of 10.5% and increased its Tier 2 capital ratio target to 12.5%, up from 10%.

The higher capital targets were decided on by the board of directors of Eika Boligkreditt (ex-Terra) yesterday (Wednesday). Kjartan Bremnes, chief executive officer at the issuer, told Nordic FIs & Covered that the decision was taken in response to stricter capital requirements proposed by the Norwegian ministry of finance in late March.

“There was no change to the core capital ratio, which has been at 9% since July last year,” he said, “but the main change was with respect to Tier 2 capital, for which a target of 12.5% has been set.

“What was somewhat surprising was that the capital requirements proposed by the ministry are supposed to be implemented by 1 July, which does not leave a lot of time,” he added.

However, he said that the issuer is taking action to meet the requirements within this timeframe, and that the Financial Services Authority has indicated that it will take a soft stance and focus on capital levels achieved by year-end.

In order to meet the higher capital targets the covered bond company will target issuance of up to Nkr600m (Eu80m) of new subordinated debt, taking in tier 2 and hybrid capital, for which it will seek shareholder approval at a general meeting expected to be held this month.

“We have some subordinated debt outstanding already,” said Bremnes, “and aim to cover around 2% of our total capital requirements with Tier 2 debt and 1.5% with Tier 1.”

Moody’s previously said that the stricter capital requirements proposed by the ministry of finance are credit positive for Norwegian banks and covered bonds because they would protect against unexpected losses in banks’ loan books.

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