The “One Bank” Strategy for 2012-2016 provided 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 “mobile Bank” Strategy, implemented in mid-2016, provides for the strengthening of the funding profile due to the increasing volume of covered bonds and transaction deposits and maintaining the loan-to-deposit ratio on the level of at most slightly above 100% every year (92.9% at the end of 2018). It was reflected in the changes of the structure of mBank Group’s funding at the end of 2018.

Changes in mBank Group's funding structure

Bonds issued under the EMTN Programme

After the successful first eurobond issue in October 2012 and issue of CHF bonds in October 2013, mBank Group completed further issues under the EUR 3 billion EMTN Programme in 2014. In 2015, there were no issues under the EMTN Programme, whereas on October 12, 2015, bonds worth EUR 500 million were repaid. On September 21, 2016, mBank, through its foreign subsidiary mFinance France, completed the issue of bonds with a nominal value of EUR 500 million, maturing in 2020. In 2017, there was one issue under the EMTN Programme. On March 28, 2017, mFinance France issued 6-year bonds with a nominal value of CHF 200 million and 1.005% coupon.

In 2018 two issuances under the programme took place. On June 7, 2018, mBank issued unsecured bonds at nominal value of CHF 180 million, with 0.565% coupon and four-year maturity. On September 5, 2018, an issue of EUR 500 million, 1.058% coupon and four-year maturity was completed. Two EMTN tranches were repaid in 2018, CHF 200 million in October and CZK 500 million in December.

The following table presents a summary of outstanding tranches:

Issue date Nominal value Maturity date Coupon
01.04.2014 EUR 500 M 01.04.2019 2.38%
26.11.2014 EUR 500 M 26.11.2021 2.00%
26.09.2016 EUR 500 M 26.09.2020 1.40%
28.03.2017 CHF 200 M 28.03.2023 1.01%
07.06.2018 CHF 180 M 07.06.2022 0.57%
05.09.2018 EUR 500 M 05.09.2022 1.06%

mBank continues 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 a mortgage bank with the longest track record of issuing covered bonds on the Polish capital market. As of December 31, 2018, the value of issued mortgage covered bonds amounted to PLN 7.2 billion.

Covered bond issues conducted by mBank Hipoteczny constitute an important part of mBank Group’s funding strategy. The scale of mBH’s issuing activity in 2018 and the parameters of individual issues mark a significant change in the policy of the bank, whose main function is to raise funding and refinance long-term mortgage loans through covered bond issues. The main focus is on narrowing the maturity gap between assets and liabilities, reducing the currency gap, and cutting the cost of new funding.

In 2018, mBank Hipoteczny placed three issues of mortgage covered bonds in the total nominal amount of PLN 1.6 billion. A summary of mBH activity on the public market in 2018 is presented in the following table.

Volume Currency Issue date Maturity Tenor (in years) Coupon Place of quotation
300 M EUR 26.04.2018 05.03.2025 7 1.073% (MS+42 bps) Luxembourg Stock Exchange
300 M PLN 22.06.2018 10.06.2024 6 WIBOR3M +58 bps WSE Secondary Market and Bondspot
10 M PLN 15.10.2018 10.06.2024 6 WIBOR3M +58 bps WSE Secondary Market and Bondspot

EUR 300 million issue is an inaugural benchmark covered bonds issue on an international market performed under the International Covered Bonds Issue Programme. Final price amounted to 42 bps above MS (Mid-Swap) and the coupon was set at 1.073%. This is the biggest covered bonds issue in the mBH’s history which constitutes an equivalent of ca PLN 1,250 million. From mBank Group perspective this issue is the longest and most favourably priced issue on an international market in the history. Over 60 investors declared their will for purchasing mBH’s covered bonds for a total value of over EUR 800 million (2.7 times the value of actually placed issue). The issue is listed on the Luxembourg Stock Exchange.

PLN 300 million issue was performed under the Domestic Covered Bonds Issuance Programme in the new distribution model. Book building in scope of domestic investors was run by mBank while the foreign demand was represented by Erste Group Bank AG. In total 23 investors declared their will do purchase covered bonds for a joined value of over PLN 577 million, nearly doubling the offer’s nominal value.

The PLN 10 million issue from October 2018 was performed in order to assimilate it with PLN 300 million issue from June 2018. Terms of reference granted to buyers of covered bonds is unified for both joined series of covered bonds’ issues. Since assimilation covered bonds from both issues are listed under common ISIN on the WSE secondary market and Bondspot. This was the first capital assimilation of two series of covered bonds in the history of Polish capital market.

Covered bonds issued by mBank Hipoteczny are characterised by low investment risk, which is a result of the statutory obligation to apply complex security mechanisms while issuing and trading in such instruments. This has been proven by the ratings of the bank’s mortgage covered bonds assigned by Fitch Ratings Ltd. On June 22, 2018, the rating of mortgage covered bonds was affirmed at A.

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