6.2. mBank Group funding

The One Bank Strategy for 2012-2016 provides for optimisation of the Bank’s balance sheet in terms of its profitability and structure by increasing the share of client deposits in funding, further diversification of the funding base, and a bigger share of high-yield assets.

The figure below presents the structure of mBank Group’s sources of funding at the end of 2014.

Bond issued under the EMTN Programme

After the successful first issue of CHF bonds in October 2013 and the first eurobond issue in October 2012, mBank Group completed further issues under the EUR 3 billion EMTN Programme in 2014.

mFinance France acting as issuer (fully underwritten by mBank) issued two tranches of bonds addressed to European investors. The transactions were preceded by a road show in the major capital centres of Europe. The road show included a number of investor meetings which attracted very strong interest.

At the turn of March to April 2014, EUR 500 million of bonds maturing on April 1, 2019 were sold at 145 bps above the swap rate. The coupon is 2.375% p.a.

At the close of book building, investor subscriptions ran up to nearly a billion euros. The subscriptions on the book were very diverse: they came from more than 100 investors representing mutual funds, banks, insurers and pension funds. It should be noted that 15% of the bonds were placed with domestic institutional investors.

In November, the Bank returned to the international market with another EMTN issue, selling EUR 500 million of bonds maturing on November 26, 2021 at 145 bps above the swap rate. The coupon is 2.000% p.a.

Compared to the previous EMTN issue, the maturity was extended from 5 to 7 years but the cost of funding above the swap rate was unchanged. The improved pricing parameters combined with an extended maturity clearly suggest that investors on the international capital markets perceive mBank as a solid and reliable issuer with a presence in a stable economy.



Date of issue

Nominal value

Maturity date


4 October 2012

EUR 500 million

12 October 2015


5 September 2013

CHF 200 million

8 October 2018


22 November 2013

CZK 500 million

6 December 2018


24 March 2014

EUR 500 million

1 April 2019


20 November 2014

EUR 500 million

26 November 2021


prev next

The success of the subsequent EMTN issues corroborates the adopted strategy and allows mBank to continue its efforts aimed to diversify the sources of funding and to ensure stable refinancing on attractive terms.

Activity on the covered bond market

mBank Hipoteczny (mBH) is one of two mortgage banks currently active on the Polish market (next to Pekao Bank Hipoteczny) and the leader in covered bond issues with a market share of 73.4% at the end of December 2014. In 2014, mBank Hipoteczny became a more active player on the debt securities market. mBH placed eight series of covered bonds during the year. The total nominal value of the covered bonds in issue was PLN 1,014 million. Consequently, mBH successfully achieved its target of issuing PLN 1 billion of mortgage bonds in 2014.

It was the best year in the fifteen-year history of mBank Hipoteczny as measured both by the number of issued series of covered bonds and their total value. The value of new covered bonds issued by mBH and the outstanding covered bonds on the market crossed the mark of PLN 3 billion for the first time in history.

In subsequent series, the issue parameters of new issues of covered bonds introduced to trading changed substantially. Previous series denominated mainly in PLN had relatively short maturities as well as floating interest rates. Compared to the 2014 issues, the policy of the bank was modified as its main function is to raise funding and to refinance long-term mortgage loans. The main focus is on narrowing the maturity gap of assets and liabilities, reducing the currency gap, and largely cutting the cost of new funding.

In late February 2014, mBH issued the first series of 15-year EUR covered bonds. Their maturity is among the longest maturities of corporate debt ever issued by Polish issuers. The success of the issue was not a one-off event, as demonstrated by another two 15-year covered bond issues. Each next series met growing demand of foreign investors, as reflected in the growing nominal value of issued covered bonds, from EUR 8.0 million to EUR 20.0 million. Each series bears interest at a fixed rate.

At the turn of July to August 2014, mBH issued two series of PLN covered bonds. The Bank was originally planning to issue up to PLN 200 million of HPA22 series covered bonds. Faced with strong interest from domestic financial market players, mBH decided to raise the nominal value of the HPA22 series to PLN 300 million and arranged an issue of the HPA23 series. As a result, mBank Hipoteczny raised PLN 500 million in total. This was the largest sale of covered bonds in the history of Poland’s mortgage banking.

To take advantage of the positive foreign investor sentiment, mBH raised another EUR 70 million in two transactions closed in Q4 2014. Table presenting information on all covered bond issues completed on 2014 is presented in section 2.3 Key projects of mBank Group.

Compared to the previous issues, the success of the 2014 transactions should be seen in the context of the falling interest margin and the extended maturity of the instruments. This results in a significant reduction of the cost of funding and a much better match of the maturities and currencies of the Bank’s assets and liabilities.

Legislative changes concerning covered bonds

On August 26, 2014, the Council of Ministers approved the assumptions for a draft act on covered bonds and mortgage banks which aims to improve protection of covered bond holders, reduce the cost of bond issues, and narrow the maturity gap of assets and liabilities on the balance sheets of mortgage banks.

The assumptions define the rules of satisfying the claims of covered bond holders and describe the bankruptcy process of mortgage banks, which should strengthen the safety of covered bond holders and reduce the cost of funding with covered bonds.

Mortgage banks will also be in a position to increase the value of issued covered bonds to 80% of the mortgage lending value of property for retail mortgage loans for individuals, compared to the current cap of 60%. In addition, the proposed amendments will simplify entries into the mortgage register under mortgage banks’ claims.

Mortgage banks will be subject to the requirement to hold statutory over-collateralisation of covered bonds equal at least to 10% of the value of issue and to hold a liquidity buffer necessary to cover interest on covered bonds for a period of 6 months.

The proposed amendments will improve credit ratings, which will reduce the cost of funding with covered bonds.

The Bankruptcy and Restructuring Act will also be amended. The proposed solutions clarify the rules of satisfying claims under covered bonds and using assets entered into the collateral register. Each covered bond creditor will have the same rights to a separate pool of bankruptcy assets. The clarification of the rules of satisfying creditors’ claims under covered bonds will largely increase the safety of investors and the certainty of trading.

Amendments are also planned in the Personal Income Tax Act including among others exemption of interest on covered bonds from taxation at the source and the equitable position of loans granted by mortgage bonds and purchased loans. The Corporate Income Tax Act is also proposed to be amended. Amendments of the Act on Organisation and Operation of Pension Funds and the Act on Co-operative Savings and Loan Associations will expand the opportunities for investment in covered bonds for pension funds and co-operative savings and loan associations.

The expected effective date of the new regulations is in the course of 2015.