SpareBank 1 members set up supplementary issuers, SpaBol still key

Oct 31st, 2014

Members of the SpareBank 1 alliance in Norway are setting up their own covered bond issuers as a back-up to SpareBank 1 Boligkreditt (SpaBol) because of large exposure limit regulation.

SpareBank 1Although some will take advantage of the new entities to fund certain lending that cannot be financed through SpareBank 1 Boligkreditt, it is set to remain the key covered bond funding vehicle for the alliance.

SpareBank 1 Nord-Norge announced alongside its third quarter results yesterday (Wednesday) that it is establishing a 100%-owned covered bond mortgage company.

“This company will represent a supplement to SpareBank 1 Boligkreditt, which will continue to be the main vehicle for the alliance banks’ funding in the covered bond market,” it said. “The bank may sell additional loans to the new covered bond company due to different qualifying criteria, including fixed rate mortgages.

“Additionally, the establishment of a 100% owned covered bond mortgage company will eliminate problems related to regulatory restrictions with regard to maximum liabilities size between SpareBank 1 Nord-Norge and SpareBank 1 Boligkreditt.”

SpareBank 1 SR-Bank announced a similar move today (Thursday) upon releasing its third quarter results, and other alliance members are expected to do likewise.

In a notice released yesterday, SpareBank 1 Boligkreditt addressed the moves and cited large exposures regulations as being central to the development.

“The reason for the application is that regulatory changes require an increased weighting of the exposures among financial institutions,” it said. “The change in the weighting of exposures to SpareBank 1 Boligkreditt has increased to 100 from 20 per cent. This entails that limitations may occur in the degree to which an individual SpareBank 1 bank can access covered bond funding through SpareBank 1 Boligkreditt.”

According to Eivind Hegelstad, COO and head of investor relations at SpareBank 1 Boligkreditt, the alliance members are not faced with any restrictions on amounts today, but are establishing their issuers as something of a “safety valve” that could be used should they approach the limit at a time of difficult market conditions in future.

He said he expects some alliance members to use their new issuers more actively than others — partly to demonstrate their viability but also to finance mortgages that are not eligible for financing through SpareBank 1 Boligkreditt due to the joint issuer’s “stringent criteria”.

As mentioned by SpareBank 1 Nord-Norge, fixed rate mortgages are not eligible for financing through SpareBank 1 Boligkreditt. SpareBank 1 Nord-Norge, for example, has some Nkr7bn (Eu828m) of fixed rate mortgages on its balance sheet, while it has meanwhile transferred about 40% of its mortgages to SpareBank 1 Boligkreditt, according to Ronny Sørensen, head of treasury at SpareBank 1 Nord-Norge.

“Of course we won’t sell the remaining 60% of the mortgages to the new company,” he said. “The reasons for that are the conservative funding strategy and the potential subordination of our unsecured debt in the parent company.

“We should have reserves in place in terms of mortgages that would permit the company to issue if necessary,” he added, “and if you plan to issue then you should do some investor work, and therefore it makes sense to prepare some issuance for them to focus on.”

However, he stressed that it is early days yet, with the entity still needing approval, and that SpareBank 1 Boligkreditt will remain its most important funding route.

“We see this as a risk-reducing measure,” he said. “And also SpareBank 1 Boligkreditt is the company with the lowest funding cost for us.

“It’s triple-A and we are dependent on that to remain competitive in the market.”

Email this to someoneShare on LinkedInTweet about this on TwitterShare on Google+Share on FacebookShare on RedditDigg thisPin on PinterestShare on Tumblr
Tags: , , , , ,