Public Sector CB (Obrigações sobre o Sector Público)

1 Who is the issuer?
  • Universal credit institution
  • Specialized credit institution
  Comments: Mortgage Credit Institutions (MCI).
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: If the assets are transferred from the Parent House to a Mortgage Credit Institution (Specialized credit institution), the Issuer is not the originator of the assets.
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
1 What types of assets may be included in cover pools?
  • Exposures to public sector entities
  • Group originated Senior MBS
  • Senior MBS issued by third parties
  Comments: The Cover Pool may contain credit assets over the central administration, regional or local authorities as well as credits secured by an express and legally binding guarantee issued by any of such entities. Senior MBS eligible within the scope of credit operation of Eurosystem.
The Pool may also contain substitution assets up to 20% : Deposits with the Bank of Portugal in the form of cash, government bonds or bonds eligible for credit operations within Central Banks European System ( could include Senior MBS eligible within the scope of credit operation of Eurosystem); Time deposits in credit institutions with a minimum “A-” rating and or Other low risk and high quality assets to be defined by the Bank of Portugal.
2 What is the geographical scope for public sector assets?
  • EEA
3 What is the geographical scope for mortgage assets?
  • EEA
4 Are regular covered bond specific disclosure requirements to the public mandatory?
  • No
1 LTV is calculated using which valuation?[4]
  • Other
  Comments: LTV doesn’t apply to Public Sector Bonds. The nominal value of the public loans is value to be considered to enter the pool (LTV = 100%).
2 Are there any special LTV limits used solely for calculating collateralisation rates for the cover pool (if yes, specify)?
  Comments: LTV doesn´t apply to Public Sector Bonds.
3 Do bondholders get the benefit of that portion of the loan which exceeds the LTV cap?
4a Is there an LTV cap which makes the entire loan ineligible to be put in the cover pool (if yes, specify)?
  Comments: LTV doesn´t apply to Public Sector Bonds.
4b Is there an LTV cap which would require a loan to be removed from the cover pool?
  Comments: LTV doesn´t apply to Public Sector Bonds.
5 Is there any additional LTV limit on a portfolio basis?
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
  Comments: Mitigation of exposure to market risk is not directly required in the Decree-Law or contrat, however secondary legislation states that currency risk hedging is mandatory and aims at mitigating market risk. Each issuer must put in writting the specific policies for risk management, namely exchange risk, liquidity risk and interest rate risk and any other procedures aimed at ensuring compliance with the applicable regulatory regime.
2 What is the primary method for the mitigation of market risk?
  • Use of derivative hedge instruments
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:
  • By the time of issue of covered bonds or entry of asset in the cover pool
4 What type of coverage test is applied?
  • Nominal cover
  • Present value cover
5 What is the frequency of coverage calculations?
  • Monthly
6 What types of stress scenarios are applied?
  • Static
  • Dynamic
7 What is the frequency of stress test calculations?
  • Monthly
Exposure to liquidity risk
8 Is exposure to liquidity risk required to be mitigated by law or contract?
  • No
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.)
  Comments: The law establishes the possibility of credit facilities to be activated as needed, being this funds solely applied for redemption and interest payments associated with covered bonds.
10 What is the primary method for the mitigation of liquidity risk on principal payments?
  • Liquidity facilities
  • Contractual arrangements, e.g. maturity extension or prematurity test
  Comments: The law establishes the possibility of credit facilities to be activated as needed, as mentioned above, and Covered Bond Programmes may include contractual arrangements, as for example maturity extensions, normally up to one year, in order for that the issuer may manage liquidity risk on principal and interest payments.
11 Is there any grace period in case of a breach of liquidity risk mitigants?
  • No
12 What is the consequence of not fixing a breach of liquidity risk mitigants?
  • Other regulatory or rule-based action
  Comments: If the limits are breached, the issuer shall settle immediately this situation by assigning new public loans, purchasing outstanding bonds in the secondary market and /or assign other eligible assets. These will, in turn, be exclusively assigned to the debt service of the bond.
The Bank of Portugal may also make use of its regulatory role to require additional steps by the issuers to meet with all the asset-liability criteria that it sets out.
Monitoring of exposures to market and liquidity risk
13 Who monitors the maintenance of coverage tests?
  • Supervisory authority
  • Trustee/cover pool monitor
  Comments: Annual Report sent to Supervisory Authorities ( Bank of Portugal and CMVM – Capital Markets Regulator).
14 Are there any regular public reporting requirements for market and liquidity risk?
  • No
  Comments: The issuer has to send a liquidity map quarterly as well as the exposure to interest rate risk of the aggregated assets and liabilities, in terms of net present value.
Overcollateralisation
15 Is mandatory minimum overcollateralisation required?
16 What is the level of minimum mandatory overcollateralisation?
  • 0%
17 If mandatory overcollateralisation is required, are the amounts above the minimum OC level protected?
  • Yes
18 Is there any grace period in case of a breach of the coverage test?
  • No
19 What is the consequence of not fixing a breach of the coverage test?
  • Other regulatory or rule-based actions
  Comments: Bank of Portugal may intervene.

Global comments for this chapter

Voluntary Over Collateralization is protected by law.
1 Is a special license required for the issuing of covered bonds?
  • No
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: The issuer has to send a liquidity map quarterly as well as the exposure to interest rate risk of the aggregated assets and liabilities, in terms of net present value.
3 What is the role of the banking supervision regarding covered bonds?
  • To check whether eligibility criteria are fulfilled and documented
  • Monitoring of exposure to market risk and liquidity risk
  • To check minimum mandatory overcollateralisation requirements
  Comments: To check (when applicable) minimum mandatory or voluntary overcollateralisation.
4 Is there a special role of banking supervision in crisis regarding covered bonds?
  • 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
  Comments: The independent auditor has two different roles, one for the auditing of the assets and one of verifying of compliance to applicable legal and regulatory requisites regarding mortgages bonds and public sector bonds, and of reporting to the Bank of Portugal on an annual basis.
1 Do covered bonds automatically accelerate when the credit institution goes insolvent?
  • No
  Comments: Investors may decide at a bondholder’s Assembly a majority of 2/3 to call the mortgage bonds, otherwise the original maturity remains unchanged.
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
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
3 Are listed covered bonds eligible in repo transactions with the national central bank?
  • Yes
4 Are there any special investment regulations regarding covered bonds?
  • Yes
  Comments: Investment funds can invest a maximum of 25% of their own funds in a single issuer’s covered bonds. 10% BIS weighting since it meets UCITS 22(4) criteria.
1 Link to National Association representing covered bond interests
  • Association

    GOH Portugal

2 Link to national regulators and supervisors
3 Fact Book Country Chapter
  • Chapter
 
4 Hypostat Country Chapter
  • Chapter