Belgium Covered Bonds

1 Who is the issuer?
  • Universal credit institution with a special license
  Comments: Issuers need to be authorised by the National Bank of Belgium (the Regulator)
2 Does the bondholder have recourse to the credit institution?
  • Yes, direct
3 Who owns the cover assets?
  • The issuer directly
4 Is the issuer the originator of the assets?
  • Yes
  Comments: It is also possible that the universal credit institution/issuer purchases the assets from another entity in its normal course of business.
1 Are the bonds governed by a special covered bond Legislation?
  • Yes
2 What is the legal framework for bankruptcy of the issuer of covered bonds?
  • Specific legal framework superseding the general insolvency law
  Comments: When a credit institution issues Belgian pandbrieven, its assets will by operation of law consist of two distinct estates: its general estate on the one hand and a separate, ringfenced “segregated estate” on the other hand. The general estate will comprise those assets of the issuing bank to which all its creditors have a direct recourse. The segregated estate will not be part of the general insolvency estate.
1 What types of assets may be included in cover pools?
  • Exposures to public sector entities
  • Mortgage loans (Mortgage loans for the purpose of this question are taken to include guaranteed real-estate loans.)
  • Group originated Senior MBS
  • Exposures to credit institutions
  Comments: (i) Group originated public sector ABS is also allowed; (ii) 'Mortgage loans' can include loans that are partially (upto 40%) secured by Belgian mortgage mandates.
2 What is the geographical scope for public sector assets?
  • Multilateral development banks
  • OECD
3 What is the geographical scope for mortgage assets?
  • EEA
4 Are regular covered bond specific disclosure requirements to the public mandatory?
  • No
  Comments: The Pool Monitor is required to provide regular covered bond information to the Regulator.

Global comments for this chapter

(i) The Pool Monitor is required to provide regular covered bond information to the Regulator; (ii) All Belgian issuers all have a contractual commitment to provide covered bond reporting to the public.
1 LTV is calculated using which valuation?[4]
  • Market value
  • Other
  Comments: In general in Belgium every property is valued during the underwriting process based on either the notarial deed (that includes the property sale price) and/or in case of construction, the financial plan of the architects.
2 Are there any special LTV limits used solely for calculating collateralisation rates for the cover pool (if yes, specify)?
  • Residential      
    80%
  • Commercial      
    60%
3 Do bondholders get the benefit of that portion of the loan which exceeds the LTV cap?
  • Yes
4a Is there an LTV cap which makes the entire loan ineligible to be put in the cover pool (if yes, specify)?
  • No
4b Is there an LTV cap which would require a loan to be removed from the cover pool?
  • No
5 Is there any additional LTV limit on a portfolio basis?
  • No
Exposure to market risk
1 Is exposure to market risk (e.g. interest rate, currency risks) required to be mitigated by law or contract?
  • Yes
2 What is the primary method for the mitigation of market risk?
  • “Natural” matching (matching without the use of off-balance sheet instruments) and stress testing
  Comments: Both methodologies are allowed; no primary method put forward by law but in practice natural hedging is applied by the Belgian issuers.
3 If the answer to the above question on market risk mitigation is “Use of derivative hedge instruments”, please specify whether those instruments are entered into:
4 What type of coverage test is applied?
  • Nominal cover
5 What is the frequency of coverage calculations?
  • Daily
  Comments: This is the minimum frequency.
6 What types of stress scenarios are applied?
  • Static
  Comments: The issuer is required to manage and limit its interest and currency risk related to the program and be able to sustain severe & averse interest/exchange rate movements (+/- 2% / 8%, respectively).
7 What is the frequency of stress test calculations?
  • Daily
  Comments: Stress tests not been detailed yet.
Exposure to liquidity risk
8 Is exposure to liquidity risk required to be mitigated by law or contract?
  • Yes
  Comments: The law contains a liquidity test which requires the Issuer to have all liquidity shortages which may occur in the next 180-day period, covered by liquid assets.
9 What is the primary method for the mitigation of liquidity risk on interest payments?
  • “Natural” matching (matching without the use of off-balance sheet instruments) and stress testing (Natural matching is taken to include replacing CBs with new issues, as well as substitute assets.)
  • Liquidity facilities
  Comments: Next to natural matching and liquidity facilities, 'liquid assets' (as determined by the Regulator) can be added.
10 What is the primary method for the mitigation of liquidity risk on principal payments?
  • Natural matching (matching without the use of off-balance sheet instruments) and stress testing
  • Liquidity facilities
  Comments: Next to natural matching and liquidity facilities, 'liquid assets' (as determined by the Regulator) can be added.
11 Is there any grace period in case of a breach of liquidity risk mitigants?
  • Lenght of period
    14 days
12 What is the consequence of not fixing a breach of liquidity risk mitigants?
  • Programme freeze (neither sale of assets nor new issuance allowed)
Monitoring of exposures to market and liquidity risk
13 Who monitors the maintenance of coverage tests?
  • Supervisory authority
  • Trustee/cover pool monitor
14 Are there any regular public reporting requirements for market and liquidity risk?
  • No
  Comments: All Belgian issuers all have a contractual commitment to provide covered bond reporting to the public.
Overcollateralisation
15 Is mandatory minimum overcollateralisation required?
  • By legislation/regulation
16 What is the level of minimum mandatory overcollateralisation?
  • 5%
17 If mandatory overcollateralisation is required, are the amounts above the minimum OC level protected?
  • Yes
  Comments: In case of an insolvency, the receiver can claim that part of the overcollateral that is, with certainty, not required as cover asset.
18 Is there any grace period in case of a breach of the coverage test?
  • Length of period:
  Comments: The Regulator determines the grace period on a case by case basis; could be zero in extreme cases.
19 What is the consequence of not fixing a breach of the coverage test?
  • Programme freeze (neither sale of assets nor new issuance allowed)
  • Other regulatory or rule-based actions
  Comments: The license required to issue covered bonds will be revoked, either per program or per issuer, as determined by the Regulator.
1 Is a special license required for the issuing of covered bonds?
  • Yes with additional requirements compared to general banking supervision regulations
2 Are there special reporting duties of the covered bond issuer to the supervision authority concerning covered bonds and the cover pool, which go beyond the regular banking supervision?
  • Periodic reporting required
  Comments: Mandatory quarterly reporting of the issuer to the regulator; next to that the cover pool monitor has a reporting obligation towards the regulator on several aspects such as level of overcollateralization and results of the different tests that have to be performed. The issuer is obliged to provide full cooperation to the cover pool monitor and shall give the cover pool monitor the right to review the register, loan documents, accounting book, or any other document. The regulator at its discretion can ask the cover pool monitor to perform other tasks and verifications.
3 What is the role of the banking supervision regarding covered bonds?
  • To check whether eligibility criteria are fulfilled and documented
  • Checking quality of cover assets (real estate valuations, etc)
  • Monitoring of exposure to market risk and liquidity risk
  • Evaluation of operational risk
  • To check minimum mandatory overcollateralisation requirements
4 Is there a special role of banking supervision in crisis regarding covered bonds?
  • Safeguarding ongoing management of the cover pool directly or via a special administrator
  • Involvement in transfer of cover assets and covered bonds to another credit institution
5 Is there a cover pool monitor independent from the issuer?
  • Yes
6 If there is an independent cover pool monitor, what are its duties?
  • Performing audits of the cover pool
  • Reporting duties to the supervision authority
  • Verification of coverage tests
1 Do covered bonds automatically accelerate when the credit institution goes insolvent?
  • No
2 What is the cover pool?
  • All assets on the cover register
3 How are the covered bondholders protected against claims from other creditors in case of insolvency of the issuer?
  • Preferential claim by law
  • Specific cover pool administration
4 Is there recourse to the credit institution’s insolvency estate upon a cover pool default?
  • Yes, pari passu with unsecured creditors
5 Are there provisions that require derivatives to continue in case of insolvency of the credit institution?
  • Yes
6 If derivatives are permitted in the cover pool, what is their ranking?
  • Pari passu to covered bond holders
1 Does the covered bond fulfil the criteria of UCITS 52(4)?
  • Yes
2 For further information regarding the compliance to the criteria of Article 129 of the Capital Requirements Regulation (CRR), please see the following links: http://ecbc.hypo.org/Content/default.asp?PageID=504#position https://www.coveredbondlabel.com
  • Yes
3 Are listed covered bonds eligible in repo transactions with the national central bank?
  • Yes
  Comments: Issuers are allowed to retain own issued covered bonds.
4 Are there any special investment regulations regarding covered bonds?
  • No
1 Link to National Association representing covered bond interests
  • Association
2 Link to national regulators and supervisors
  • List
3 Fact Book Country Chapter
  • Chapter
 
4 Hypostat Country Chapter
  • Chapter