EBRD invests in OTP Mortgage Bank covered bonds

By Axel  Reiserer

EBRD invests in OTP Mortgage Bank covered bonds

Injection of up to HUF 40 billion will support development of local capital and currency markets

The EBRD is strengthening the resilience of the financial sector in Hungary with the acquisition of local currency covered bonds from OTP Mortgage Bank (OTP MB).

The deal aims to revitalise the Hungarian covered bond market, support the National Bank of Hungary’s objective to strengthen the balance sheet structure of banks and improve the environment for mortgage funding in Hungary.

The EBRD is buying Baa1-rated covered bonds for HUF 4 billion (equivalent to approximately €13 million) on the Budapest Stock Exchange today.

OTP MB was established in 2001 and is a wholly owned subsidiary of OTP Bank, Hungary’s largest bank, holding approximately one-fifth of total banking assets in the country.

The issuance is part of OTP MB’s covered bond programme. The EBRD intends to invest a total of up to HUF 40 billion (approximately €130 million) in listed covered bonds issued by the bank over a three-year period. The exact participation in each placement will be adapted according to market demand and scaled down in the event of an oversubscription.

Covered bonds are an established long-term funding tool in western Europe but still new and especially important for the EBRD region, where they can contribute to the stability of banking systems.

Developing local currency and local capital markets is one of the EBRD’s priorities in its work to strengthen local financial market infrastructures and, as a result, contribute to the resilience of the economies where the Bank invests. Resilience of the financial sector is understood to be a pillar of a well-functioning market economy. The Bank believes that a well-functioning market economy should be more than just competitive; it should also be inclusive, well-governed, green, resilient and integrated.

The investment in OTP MB’s covered bonds follows successful investments by the EBRD in similar transactions in Poland, Turkey and, most recently, in the Slovak Republic. In addition, the EBRD is working with local authorities on supporting legislative reforms that can bring local covered bond markets up to the best market standards.

Lucyna Stańczak-Wuczyńska, EBRD Director in the Financial Institutions group, said: “We are very proud to become an investor in OTP Mortgage Bank covered bonds and thus to expand our investment in covered bonds to Hungary. We believe it will allow us to contribute to the strengthening of the banking sector’s balance-sheet maturities structure and to widen the local capital and currency markets in the country. We would like to remain an active investor, cooperating with stakeholders in the Hungarian capital market.”

András Becsei, CEO of OTP MB, said: “We are delighted to welcome the EBRD among our investors, and we consider the Bank’s decision to take part in this transaction an acknowledgment of our prudent business model.”

Since the beginning of its operations in Hungary, the EBRD has invested over €2.9 billion in some 175 projects in the country.