Looming Bank Misery Seen a Boost to Fledgling Polish ABS Market

  • Proposed bank tax, stricter capital rules incentives for ABS
  • PKO Bank Polski, mBank to sell mortgage-backed securities

Poland’s asset-backed securities’ market may receive an unintended boost from the Law & Justice party.

Prime Minister Beata Szydlo, who took office on Nov. 16 after the new government swept into power, plans to tax assets of financial institutions to help fund increased social spending. That charge, along with stricter capital requirements coming into effect from the start of next year, are making it more compelling for banks to bundle loans to sell to investors in order to cut costs and strengthen their balance sheets.

“The new regulatory and fiscal environment will be an incentive for banks to use their mortgages, retail loans and leasing portfolio more actively for backing further issuances,” Pawel Borys, who advises the management board as head of strategy at PKO Bank Polski SA, said on Nov. 26. “If asset-backed securities sales prove to be cheaper than regular debt issuances, we will see more examples to come.”

The depth of Poland’s ABS market has so far been limited, with only six banks coming to market with such securities since the global financial crisis, in part because of government regulations that double taxed mortgage-backed securities as well as the complexity of transaction and limited demand. Plans to ease these levies from next year is opening the way for PKO, the nation’s biggest lender, to sell MBS for the first time, and encouraging and Commerzbank AG’s local unit MBank SA to increase offerings.

MBank plans to sell at least 1.5 billion zloty ($372 million) of debt backed by home loans next year and is looking to finance at least of 60 percent of new mortgages from such issuances, spokesman Piotr Rutkowski said.

Since ABS transactions are backed by assets such as mortgages or car loans, they can be a cheaper funding source for banks than selling bonds. Getin Noble Bank SA paid 120 basis points above Warsaw Interbank Offered Rate on Nov. 25 to sell 1.2 billion zloty of debt backed by leases maturing in 2020. That’s 50 basis points less than the rate investors charged for three-year unsecured notes in December 2014.

“The demand for Polish asset-backed securities is higher than ever before,” Michal Marciszewski, Warsaw-based director of securitization at Getin Noble, said on Nov. 24. 

The zloty was little changed against the euro at 4.2713 as of 12:04 p.m. in Warsaw on Monday.

Early Stages

Getin Noble plans to sell debt backed by car loans next year, he said. Raiffeisen Bank International AV’s Polish leasing unit plans a similar transaction later this year.

“The market is still in very early stage, and we need to seek buyers abroad, as local funds demand higher premiums for securities they are not very familiar with,” Kajetan Bulge, head of asset and liabilities management at Raiffeisen-Leasing Polska SA in Warsaw. “With new capital requirements for lenders, the situation may change.”

Poland’s financial regulator increased the so-called Tier 1 capital-adequacy ratio to 10.25 percent in 2016 from 9 percent this year, with additional requirements for lenders’ exposed to Swiss-franc denominated mortgage-loan portfolio. Banks and financial firms could face a tax of 0.39 percent on assets, under the new government’s proposal. 

“Growing pressure on banks may encourage lenders to seek cheaper funding via securitization, especially those with homogeneous portfolios of loans,” Michal Bryks, director for financial institutions at Fitch Ratings in Warsaw, said Nov. 27. “I wouldn’t expect issuances to boost rapidly, as they need lengthy preparations.”

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