Dutch registered CBs programmes

1 Who is the issuer?
  • Universal credit institution with a special license
  Comments: Both the category of covered bonds (the programme) and the Dutch bank as issuing entity require a registration by the Dutch Central Bank under the Dutch covered bond legislation. See also question VI.1.
2 Does the bondholder have recourse to the credit institution?
  • Yes, direct
3 Who owns the cover assets?
  • SPE which guarantees the covered bonds
  Comments: Legally the assets are owned by the SPE. From an accounting perspective the assets remain on the consolidated balance sheet of the issuer. Despite the legal transfer of the assets to the SPE, the issuer is still carrying the credit risk of the assets.
4 Is the issuer the originator of the assets?
  • Yes
  • No
  Comments: There may be additional originators from the issuer's group. Furthermore, the issuer and such additional originators from the same group may have acquired assets from other originators.
1 Are the bonds governed by a special covered bond Legislation?
  • Yes
  Comments: The Dutch legislative framework for regulated covered bonds is incorporated in:
• the Dutch Financial Supervision Act (Wet op het financieel toezicht);
• the Decree on Prudential Rules Wft (Besluit prudentiële regels Wft); and
• the Implementing Regulation Wft (Uitvoeringsregeling Wft) (together the 'CB Legislation'). The new CB Legislation came into effect on January 1, 2015 and replaces the Dutch covered bond regulations introduced in 2008 (the '2008 Regulations'). For futher details we refer to the Dutch country chapter of the 2015 edition of the ECBC Fact Book and the DACB website (www.dacb.nl) from which the official Dutch legal text and the (unofficial) English translation can be downloaded.
2 What is the legal framework for bankruptcy of the issuer of covered bonds?
  • General insolvency law
  Comments: An insolvency of the issuer does not result in an insolvency of the SPE owning the cover pool.
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.)
  • Ship loans
  • Exposures to credit institutions
  Comments: Under the Dutch CB legislation (Decree on Prudential Rules under the Financial Supervision Act - 'the Decree') only a subset of the assets mentioned in Article 129 CRR are allowed. If other assets are used this category of covered bonds (the programme) will not be registered and will be referred to as a structured covered bond. Assets not specifically mentioned in the Decree are only allowed if they are included in the Implementing Rules of the Financial Supervision Act, to date (June 2015) no other assets have been included. In practice all cover pools consist of residential mortgage loans and allow for inclusion of (a limited amount of ) substitution assets.
2 What is the geographical scope for public sector assets?
  • EEA
  Comments: Public sector loans are under the Dutch legislation defined as eligible cover assets. However, to date (October 2015) Dutch categories of covered bonds only use Dutch residential mortgages as primary cover assets, public sector assets are therefore not used as primary cover assets. Public sector assets - subject to quantitative and qualitative (minimum credit rating) criteria - are only used as substitution assets (if and when applicable).
3 What is the geographical scope for mortgage assets?
  • Domestic
  Comments: The Dutch legislation enables mortgage loans originated in EEA countries and commercial mortgage loans. To date (October 2015) Dutch categories of covered bonds only use Dutch residential mortgages as primary cover assets.
4 Are regular covered bond specific disclosure requirements to the public mandatory?
  • Yes
  Comments: The Dutch CB legislation has specific articles that refer to the reporting obligations to both the Dutch central bank (confidential) and the public (eg. investors). Public information for investors in Dutch covered bonds has to be provided at least on a quarterly basis (although in practice this takes place on a monthly basis) and covers a large range of data that issuers are obliged to include in their reporting (often referred to as National Transparance Templates). Audited financial statements of the company that is the beneficiary of the cover assets form also part of the publicly available information. The investor reports can be found on the relevant issuer’s website. Links to these pages are also available on the website of the Dutch Association of Covered Bond Issuers: www.dacb.nl. Finally Dutch issuers meet all the reporting obligations as required by the ECBC Label Convention. The Dutch issuer community has also embraced the ECBC initiative to work towards an European harmonised reporting template.
1 LTV is calculated using which valuation?[4]
  • Market value
  Comments: For the LTV cut-off percentages referred to in questions IV.2 and 3 below, all covered bond programmes use the market value at time of origination, this market value is updated via indexation. For indexation purposes the Dutch land registry (Kadaster) is used. Price index increases above the original market value only count for 85%-90% (depending on the programme) whilst price decreases are fully taken into account. For the eligibility LTV cap discussed in question IV.4a below, all covered bond programmes use the market value at origination for mortgages originated as off August 2011. Programmes may use either market value or forceclosure value for mortgages originated before August 2011.
2 Are there any special LTV limits used solely for calculating collateralisation rates for the cover pool (if yes, specify)?
  • Residential      
    80%
  Comments: All covered bond programmes apply an 80% LTV (market value) cut-off percentage. Some covered bond programmes apply a 100% or other LTV cut-off percentage for residential mortgage loans that have the benefit of a Dutch National Mortgage Guarantee (Nationale Hypotheek Garantie).
3 Do bondholders get the benefit of that portion of the loan which exceeds the LTV cap?
  • Yes
  Comments: This portion of the loan provides the investors in Dutch covered bonds with additional security, since this portion is not taken into account when calculating the asset cover test.
4a Is there an LTV cap which makes the entire loan ineligible to be put in the cover pool (if yes, specify)?
  • Residential      
  Comments: (Residential, 125%).
Under Dutch covered bond programmes the maximum LTV for a residential mortgage loan to be eligible for the asset pool depends on its date of origination, with maximum LTVs being more restrictive for more recent and future origination.
For residential mortgages originated before August 2011, Dutch programmes applied eligibility criteria such that LTVs at the time of origination did not exceed 125% of the foreclosure value or (depending on the programme) 106.25%-110% of the market value (the latter was subject to some exceptions for specific products which may be more restrictive or less restrictive).
For mortgages originated from August 2011 onwards, following a new Code of Conduct, all programmes use a maximum LTV of 104%-110% based on the market value (exact percentage depends on the programme).
Recently new special underwriting legislation came into effect (1 January 2013), that lowered the maximum LTV for newly originated mortgages even further. Under this new legislation, the maximum LTV at origination (based on market value) will be gradually lowered with 1% per annum to 100% in 2018 (in 2015 the maximum LTV is 103%).
4b Is there an LTV cap which would require a loan to be removed from the cover pool?
  • No
  Comments: Any surplus over the LTV cap referred to under question IV.2 above, forms additional security for the covered bonds investors (see also IV. 3).
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?
  • No
  Comments: The Dutch law does not require specific risk mitigating actions or instruments in case
of market risk, but the law obliges issuers to perform stress tests (see V.6)
2 What is the primary method for the mitigation of market risk?
  • Use of derivative hedge instruments
  Comments: Most issuers in the Netherlands use derivatives contracts to hedge the market risk, however
depending on the issuer and currency of issuance "natural" matching is also used.
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
  Comments: For soft and hard bullet covered bond programmes a total return swap is entered into at
inception of the covered bond programme. Covered bond series swaps (interest rate, cross currency
swaps and/or structured swaps) are entered into at the time of issue of the relevant series of covered bonds. Conditional Pass-Through Covered Bond programmes allow the use of derivative hedge
instruments, but so far no derivatives have been used.
4 What type of coverage test is applied?
  • Nominal cover
  Comments: In the new Dutch CB legislation (effective as of January 1, 2015) there are two over-collateralisation ratios
that Dutch issuers must meet. One (105%) uses the nominal value of the assets in the numerator, the other (100%)
applies a correction to the value of these assets based on Article 129 CRR.
5 What is the frequency of coverage calculations?
  • Monthly
6 What types of stress scenarios are applied?
  • Dynamic
  Comments: The stress tests performed by Dutch issuers are carried out with the view (Notes to the Implementing Rules
of the Financial Supervision Act) to maintain a healthy relationship between the outstanding registered covered
bonds and the issuing bank's consolidated balance sheet. The issuing bank has to make sure there are sufficient cover
and liquid assets to comply with this. Relevant risks in this context include the risk of non-payment, the chance
of a reduction in the value of the collateral and interest rate and currency risks (which can be mitigated through the use of
- amongst other things - derivative contracts, see also V.2 and V.3).


7 What is the frequency of stress test calculations?
  • Other
  Comments: The Dutch CB legislation states that the stress test should be performed "regularly". The Dutch central bank
will determine what "regularly" is going to be. To date (June 2015) this is not clear yet, but according to the DACB
they expect that this will take place at the very least annually.
Exposure to liquidity risk
8 Is exposure to liquidity risk required to be mitigated by law or contract?
  • Yes
  Comments: As a result of the introduction of the new CB legislation (as at January 1, 2015) Dutch issuers have a
legal obligation to maintain a minimum liquidity buffer (see also V.9). This liquidity buffer has to cover the next six months
of interest payments, some administrative expenses and, depending on the structure, also the repayment of the
principal sum (unless the repayment of the principal sum can be deferred by at least six months). Additionally, the
individual programmes still include their specific rating agency driven pre-maturity and reserve fund requirements,
which also depends on the structure.
9 What is the primary method for the mitigation of liquidity risk on interest payments?
  • Contractual arrangements, e.g. a requirement to establish a reserve fund
  Comments: Both contractual arrangements and Dutch covered bond legislation mitigate liquidity risk.

Regarding contractual arrangements: All covered bond programmes include a liquidity risk mitigating
mechanism. Some programmes require the issuer to establish a reserve fund equal to 3 months’
interest payments on the covered bonds plus certain costs and expenses if the issuer's short term rating
is or falls below P-1/F1/A-1 or A-1+ (this differs per programme). Other programmes oblige the issuer
at all times to hold a liquidity account, at a separate account bank, covering 3 months of interest
payments plus certain costs and expenses.

Regarding legislation: reference is made in the new Dutch CB legislation (Decree Article 40g,
Implementing Rules Article 20e). This imposes an obligation to hold and/or generate through the cover
assets sufficient liquidity to be able to pay principal and interest as well as senior costs for the next
6 months. When calculating this required minimum amount of liquid assets, cash flows from derivatives
should also be taken into account. The obligation to hold principal does not apply to programmes in
which the payment of principal can be extended by at least 6 months after an issuer event of default.
10 What is the primary method for the mitigation of liquidity risk on principal payments?
  • Contractual arrangements, e.g. maturity extension or prematurity test
  Comments: All covered bond programmes use either (a) a pre-maturity test 6 or 12 months or less before maturity if
the issuer's short term rating is or falls below P-1/F1+/A-1+ (in case of a hard bullet structure, or (b) a maturity extension
of 12months in case of a soft bullet structure and in the case of a conditional pass through structure until the legal
maturity date of the last outstanding underlying cover asset.
. A breach of the pre-maturity test requires (i) the issuer to cash-collateralise hard bullet maturities or (ii) alternative remedies such
as a guarantee of the issuer's obligations, a liquidity facility and/or a sale or refinancing of assets.

As a result of the introduction of the new CB legislation (as at January 1, 2015) Dutch issuers now have
a legal obligation to maintain a minimum liquidity buffer. This liquidity buffer has to cover the next six months of interest payments, some administrative expenses and, depending on the structure, also the repayment of the
principal sum (unless the repayment of the principal sum can be deferred by at least six months). Additionally, the
individual programmes still include their specific rating agency driven pre-maturity and reserve fund requirements,
which also depends on the structure.
11 Is there any grace period in case of a breach of liquidity risk mitigants?
  • Lenght of period
    differs per programme
  Comments: Lenght of period differs per programme Comments: In all covered bond programmes contractual
arrangements are subject to grace periods generally lasting from 7 to 30 days. For example, a breach of the
pre-maturity test must be remedied within 10 business 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)
  • Alternative administration
  • Other regulatory or rule-based action
  • Event of default of the issuer
  Comments: All of the above are possible consequences of a breach, in addition to redirection of cash flows.
Monitoring of exposures to market and liquidity risk
13 Who monitors the maintenance of coverage tests?
  • Supervisory authority
  • Rating agency
  • Trustee/cover pool monitor
14 Are there any regular public reporting requirements for market and liquidity risk?
  • Yes
  Comments: The new Dutch CB legislation (Implementing Rules Article 20i) requires issuers to provide to the holders
of registered covered bonds at least quarterly information with respect to market and liquidity risk (and a range of other
risks). In practice this happens on a monthly basis through the investor reports.
Overcollateralisation
15 Is mandatory minimum overcollateralisation required?
  • By legislation/regulation
  • By contractual obligation
16 What is the level of minimum mandatory overcollateralisation?
  • 105% and 100%
  Comments: Dutch issuers have to meet a certain minimum contractual overcollateralisation percentage (asset
percentage) that ranges between 75% and 95% depending on (the program of) the issuer and which are provided
for by the rating agencies. Under the new CB legislation Dutch issuers now also have to meet two minimum
overcallateralisation percentages. One (105%) uses the nominal value of the assets in the numerator, the
other (100%) applies a correction to the value of these assets based n Article 129 CRR.
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?
  • Length of period:
    one month
  Comments: In case of a breach of the asset cover test, in Dutch programmes a one month grace
period applies and issuers are prohibited to issue further notes until this is remedied.

19 What is the consequence of not fixing a breach of the coverage test?
  • Programme freeze (neither sale of assets nor new issuance allowed)
  • Alternative administration
  • Other regulatory or rule-based actions
  • Redirection of cashflows
1 Is a special license required for the issuing of covered bonds?
  • No, but with additional requirements
  Comments: There are requirements in addition to the requirements pursuant to general banking supervision regulations. Both the covered bond (programme) and the issuer require a registration with the Dutch Central Bank under the CB Legislation. In respect of an application made for registration of a covered bond (and the issuer thereof) pursuant to the CB Legislation the following requirements must be met:
• the issuer is a bank having its registered office in the Netherlands. That excludes non-bank subsidiaries and banks operating in the Netherlands on a cross-border basis or through a branch office;
• the cover assets provide sufficient cover for the payment of principal and interest on the covered bonds and costs relating to risk management and management and administration of the cover assets and covered bonds;
• the cover assets have been safeguarded for the benefit of the covered bondholders by way of a transfer to a CBC;
• the issuer or its group do not own or control the CBC and the CBC must be a remote special purpose vehicle specifically set up for one category of covered bonds (i.e. one programme);
• disclosure by the issuer to DNB of certain key conditions applicable to the relevant category of covered bonds, which include:
o whether the covered bond has one of the following maturity structures: (i) its maturity date cannot
be extended (hard bullet maturity) or can only be extended for a maximum of 24 months (soft bullet
maturity) or (ii) its maturity date can be extended with more than 24 months (including (conditional)
pass through);
o which type or types of cover assets can unlimitedly be included in the cover pool (primary cover
assets) and, if more than one type is included, the ratio between them; and
o the jurisdiction in which the debtors of the cover assets are located or resided and the governing law of the cover assets.
• the issuer must ensure that a healthy ratio exists between the total amount of outstanding covered bonds of the relevant category and the total consolidated balance sheet of the issuer; and
• the issuer must have reliable and effective strategies and procedures for verifying and procuring the sufficiency of eligible cover assets and liquid assets, taking into account the composition of the cover assets, the statutory over-collateralisation, other asset cover requirements and liquidity buffer requirements.
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
  • Reporting on demand for special occasions
  Comments: The issuer has ongoing administration and reporting obligations towards DNB, including that it must:
• demonstrate at least quarterly that the regulated covered bonds continue to meet the criteria regarding registration (see question VI.1 and paragraphs I (Framework), III (Cover assets) and V (Asset – Liability Management);
• demonstrate at least annually to DNB that it has reliable and effective strategies and procedures in place for verifying and procuring the sufficiency of eligible cover assets and liquid assets;
• submit to DNB annually, within six months of the close of its financial year, the annual financial statements and the annual report of the CBC;
• submit to DNB at least annually, information on the required healthy ratio as referred to in the answer to question VI.1;
• notify DNB of significant changes it intends to make in the conditions of the regulated covered bonds prior to implementation thereof; and
• provide DNB with all information with respect to the regulated covered bonds DNB deems relevant to be able to exercise its supervision.
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
  Comments: See question VI.1 and VI.2 above.
4 Is there a special role of banking supervision in crisis regarding covered bonds?
  • No specific role
  Comments: In line with EBA best practices, the issuing bank will be required to submit to the Dutch Central Bank a plan for management of the cover assets in the event of issuer default. The plan will, amongst others, contain a description of the activities that are undertaken for the risk management, payment and administration of the cover assets and what activities will have to be transferred to the owner of the cover assets upon issuer default. The plan will have to consider the operational side of the transfer of activities, including IT and personnel related aspects.
Post issuer default, the Dutch Central Bank will continue to monitor whether the covered bonds comply with article 129 CRR and will show this in its covered bond register. In order to assess this, the owner of the cover assets will have to provide the necessary data to the supervisor. As long as the data are provided, and the requirements are met, the registration is maintained.
5 Is there a cover pool monitor independent from the issuer?
  • Yes
  Comments: the cover pool monitor is an independent auditor
6 If there is an independent cover pool monitor, what are its duties?
  • Performing audits of the cover pool
  • Verification of coverage tests
  Comments: Under the new CB legislation the agreement with the cover pool monitor (independent auditor) should also include safeguards that these audits shall remain in place after the issuing bank is no longer able to manage the cover assets itself (Implementing Rules, Article 20f.3).
1 Do covered bonds automatically accelerate when the credit institution goes insolvent?
  • No
  Comments: If the issuer becomes insolvent, the security trustee may, if instructed by the covered bondholders, accelerate the covered bonds against the issuer (but not the SPE) and will have a claim against the issuer on an accelerated basis. Any proceeds received from that claim will be added to the cover pool for the SPE to make the originally scheduled payments of interest and principal on the covered bonds. Acceleration against the issuer therefore does not automatically result in acceleration against the SPE.
2 What is the cover pool?
  • All assets transferred to SPE
  Comments: Apart from their primary claim on the issuer, the covered bondholders have a claim against the SPE owning the cover pool. The claim against the issuer is an ordinary, unsecured claim which is guaranteed by the SPE. The claim against the SPE is secured (indirectly through the security trustee) by a right of pledge on the cover pool.
3 How are the covered bondholders protected against claims from other creditors in case of insolvency of the issuer?
  • Transfer of assets to an SPE
  Comments: The assets owned by the SPE are pledged to the security trustee acting for the benefit of, amongst others, the covered bondholders.
4 Is there recourse to the credit institution’s insolvency estate upon a cover pool default?
  • Yes, pari passu with unsecured creditors
  Comments: An insolvency of the issuer does not result in an insolvency of the SPE owning the cover pool. A default by the SPE does not diminish the full recourse against the issuer. As described in question VII.1 above, an insolvency of the issuer may well precede a default by the SPE.
5 Are there provisions that require derivatives to continue in case of insolvency of the credit institution?
  • Yes
  Comments: Article 20b paragraph 3b of the Implementing Regulation Wft describes that the derivatives counterparty is not entitled to terminate, dissolve, suspend or to otherwise limit the implementation of the risk mitigating derivative contracts or other agreements due to the loss of the bank’s creditworthiness
6 If derivatives are permitted in the cover pool, what is their ranking?
  • Senior to covered bond holders
  • Pari passu to covered bond holders
  • Subordinated to covered bond holders
  Comments: Under all covered bond programmes payments of termination amounts due as a result of a default or downgrade of a swap provider rank junior to covered bond payments. Other payments under (i) the cover pool swap (total return swap) rank senior to covered bond payments and (ii) the covered bond series swaps (interest rate swaps and/or structured swaps) rank pari passu with covered bond payments.
'Please note that while all programmes provide for the CBC the possibility to enter into derivative transactions, not all currently have done so.
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: There are special investment regulations applicable, including those in UCITS or CRD, depending of the type of investor. As Dutch Covered Bonds are both UCITS and CRD compliant, investing UCITS, insurers, investment firms and credit institutions may benefit from less restrictive investment limits, lower risk weightings, lower Loss Given Default Values and Dutch registered covered bonds may qualify as Level 1 assets for the LCR. Dutch Covered bonds may also comply with ECB collateral requirements.
1 Link to National Association representing covered bond interests
  Comments: In January 2011 the Dutch issuers established the DACB. The DACB’s key objectives are to:
a. represent the interests of the Dutch issuers in discussions with legislative and regulatory authorities;
b. provide investors with information about the Dutch covered bond market;
c. participate on behalf of the Dutch issuers in international covered bond organisations like the ECBC; and
d. continuously improve the quality of the Dutch covered bond product offering.
2 Link to national regulators and supervisors
  • List
3 Fact Book Country Chapter
  • Chapter
 
4 Hypostat Country Chapter
  • Chapter