By Luca Bertalot, Secretary General, EMF-ECBC
On the 14th of April, over 230 covered bond experts convened in Copenhagen for the 23rd ECBC Plenary Meeting. It was a pleasure to welcome representatives from the Danish Financial Supervisory Authority, the Single Resolution Board, the European Central Bank (ECB), key issuers, investors, government and regulatory officials, rating agencies, journalists and other covered bond stakeholders to the event.
Denmark, a country of long-standing covered bond traditions, was a natural host location for the Industry’s key discussion forum. On behalf of the ECBC’s Chairman, Waleed El-Amir, we would like to express our thanks to the Association of Danish Mortgage Banks and the Danish Mortgage Banks’ Federation for their kind hospitality and support in hosting the event, and many thanks also to all the speakers and guests for their active participation in the panel discussions and debates.
Negative Interest Rates, New Capital Requirements and ECB Measures
The day started with an introduction to the Danish mortgage financing system by Jesper Berg from the Danish Supervisory Authority, and the first panel discussion addressed recent developments in the Danish mortgage and covered bond markets. Current challenges include negative rates and the potential for increased capital requirements for lenders as a result of Basel IV, and the conclusion of the Danish mortgage industry representatives was that decision makers should shift focus from increasing regulation to supporting growth and jobs.
The second panel – Covered Bonds: Where are we now & what lies ahead? – gave a larger overview on primary and secondary covered bond markets in Europe. The European Central Bank’s measures and purchase programmes were a main point of discussion, but negative rates and covered bond consents were also debated by the experts on the panel.
Market-Led Initiatives : HTT and ESN
Anne Caris, Bank of America Merrill Lynch and Chairwoman of the ECBC Transparency Task Force, gave a synopsis on the state of play of the Harmonised Transparency Template (HTT). This market-led initiative has been welcomed by issuer and investor communities, and is seen as the right step forward by regulators and the Industry in general, as it is a tool to enhance transparency in the market.
The next discussion focussed on covered bond harmonisation and the results of the European Commission’s consultation on the topic. The clear message on being cautious in terms of harmonisation and on the need to defend the asset class’ quality has been well received by the European Commission, which addressed the Industry’s concerns during its February 2016 conference; however, it remains to be seen what next steps will be undertaken by the regulators in the coming months.
The EU’s Capital Markets Union (CMU) initiative formed the topic of the day’s fourth panel. To support funding for the real economy, the ECBC is exploring a new funding tool, European Secured Notes (ESN), which would facilitate financing for small and medium sized enterprises (SMEs) and infrastructure projects. In Italy, a funding tool of this kind is already emerging, as the first legislative steps have been taken to allow the use of legally backed SME covered bonds as a new type of funding product.
One of the keynote speakers of the Plenary included Timo Löyttyniemi, Vice Chair of the Single Resolution Board (SRB), who gave the audience an introduction to the mission and activities of the SRB.
Global Issues and Green Financing Increasingly Important
The ECBC launched its new Global Issues Working Group in March 2016 due to increased interest from stakeholders outside of Europe, including Singapore, Brazil, South Korea and Canada. The Chairman of the Working Group, Colin Chen from the Association of Banks in Singapore (ABS), provided an overview of Singapore’s growing covered bond market. Felipe Pontual from the Brazilian Association of Real Estate Loans and Savings Companies (ABECIP) outlined recent developments in Brazil, where covered bonds are also increasingly gaining interest from the investor community.
The day’s closing panel discussed energy efficient mortgages and covered bonds. “Green financing” is receiving increasing attention and green covered bonds are attracting a lot of new investors. Jennifer Johnson from the EMF-ECBC introduced the EMF-ECBC private financing initiative to support the energy efficient renovation of homes with an “energy efficient” mortgage. Energy efficient houses can contribute to meeting the EU’s climate and energy goals. They also offer benefits to consumers, by protecting their properties against a “brown discount”, and the banking industry due to lower loss given default (LGD), lower probability of default and, as a result, potentially lower capital charges.
Banks can play a game-changing role in providing long-term financing for energy improvements to the current European housing stock.
Banks can play a game-changing role in providing long-term financing for energy improvements to the current European housing stock. They intervene at the most critical moment, when citizens purchase a property, and mortgages help individuals and families to access home ownership, thereby allowing them to secure a key part of their social expectations. The banking industry has a key role to play in improving the quality and energy performance of housing so as to free-up disposable income and, in parallel, reduce credit risk for borrowers, lenders and investors. A pan-European initiative in this area will help to coordinate market interventions, which will reduce the public resources necessary to boost households’ energy savings.
Presentations and video highlights from the 23rd Plenary Meeting will be made available via the ECBC website here.
We would already like to invite members to save the date for the next, 24th ECBC Plenary Meeting, which will take place on the 14th of September 2016 in Düsseldorf and will kindly be supported by DZ Bank. We would also like to welcome you to the 2016 edition of the Euromoney/ECBC Covered Bond Congress, which will take place on the 15th of September 2016 at the Swissôtel Düsseldorf. More information on these events will be made available soon.
This article was originally published in the EMF-ECBC Market Insights & Updates Newsletter in April 2016.