Project Hydra covered bond

complete

Project Description This PSD relates to a historical Bank project approved some years ago, and does not represent a new approval, or allocation of new funds.  Disclosure of this PSD was deferred in accordance with the transparency framework in place at the time, but due to an administrative oversight, was not subsequently disclosed. In July 2018, the Board of Directors approved investment of up to EUR 75 million in a series of mortgage covered bonds (“CBs”) to be issued by Slovenská sporiteľňa, a.s. (“SLSP” or the “Company”).  The proceeds were be utilised to support residential mortgage lending of the bank. Project Objectives The transaction was intended to (i) developing the Slovak corporate bond market; (ii) supporting the diversification of medium-term funding sources of SLSP; and (iii) improving the maturity structure of the balance sheet by extending the tenor of liabilities to better match the maturity of the underlying assets. Transition Impact The transaction’s transition impact was anticipated to stem from market expansion – contribution of development of a critical mass of outstanding CBs to create the basis for successful similar issuances in future – and demonstration of high standards relating to the legal framework in place in relation to CBs. Additionality The EBRD’s additionality was derived from its provision of medium- to long-term funding through CBs in an environment of still developing local capital market for such instruments, and to support via capital market the diversification of funding sources and lengthening of maturities for liability, to better match Company’s assets. Further, the EBRD’s support of an issuance of this size was expected to provide comfort and encourage entrance of more foreign institutional investors, particularly when paired with the Bank’s policy dialogue on formulation and maintenance of an adequate covered bond framework in Slovakia. Environmental and Social Summary Determined to be a Category FI project, the Bank required that the Company continue to comply with the standards imposed by Performance Requirement 2 (Labour and Working Conditions), 4 (Health, Safety and Security) and 9 (Financial Institutions) and submit annual reporting to the EBRD regarding its management of environmental and social matters. Technical Cooperation None. Implementation Summary EBRD was able to support two CB issuances by the Company during 2018. The first one was in August, the first ever Aaa rated CB issuance out of Slovakia (and EBRD CoOs), and a EUR 250 million covered bond by SLSP. Through this issuance, EBRD was able to support the diversification of medium-term funding sources available to the Company, and provided comfort which encouraged more foreign investors to participate in the issuance.  Prior to the transaction, the Company’s issuances had never exceeded EUR 100 million, and were mostly placed with its parent company (Erste Group) or with local investors, but for this issuance, more than 60% of investors were from outside of Slovakia. On the basis of the success of this transaction, the EBRD invested again in SLSP’s EUR 250 million transaction that took place at the end of November 2018.