Activating the covered bonds market in Poland – the need for regulatory improvements

The institutional framework for the functioning of covered bonds (list zastawny - L.Z.) in Poland was established already in 1997 and first issues took place in 2000; by 2013, L.Z. accounted for a few percent of property market funding, mostly with respect to commercial property. The latest liquidity limits introduced by the requirements of Basel III and of the Capital Requirements Directive / Regulation (CRD / CRR4) will persuade banks to show greater interest in long-term funding instruments to some extent, but in order to improve the L.Z. system in Poland more comprehensively, further changes to the legal environment are necessary so as to achieve significantly better ratings compared to unsecured bonds. The adjustment of the mortgage banking business model that assumes a synergy between the credit policy and the policy for funding mortgage portfolios with L.Z. within groups will also be of essential importance. The direction of systemic solutions represented by the Polish L.Z. and the quality of the collateral provided by safe assets are commensurate with the expectations of investors who tend to be wary following the sub-prime crisis. The key issue will be to achieve a larger issuance scale as well as to ensure market liquidity. The authors of this analysis express their opinion on success factors in the Polish market environment.