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Questions Turkish Covered Bonds
I. STRUCTURE OF THE ISSUER
1. Who is the issuer?
  • Universal credit institution with a special license
  • Specialized credit institution
(1) Comments: Banks and mortgage finance corporations with a licence from the Capital Markets Board can issue.
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?
  • No
(2) Comments: Investor reporting and reporting to the Capital Markets Board is mandatory but a public disclosure is not specifically addressed in the sense that it is referred under the Pfandbriefe Act.
II. FRAMEWORK
1. Are the bonds governed by a special covered bond Legislation?
  • Yes
(3) Comments: Law 5582 "Law Amending the Laws Related to the Housing Finance System" enacted on 21 February 2007 and by-law on Turkish Mortgage Covered Bonds (İTMK) released by the Capital Markets Board (Serial: III, No:33) on 4 August 2007.
2. What is the legal framework for bankruptcy of the issuer of covered bonds?
  • General insolvency law
  • Specific legal framework superseding the general insolvency law
(4) Comments: In the event of issuer bankruptcy, until the İTMK are paid a Manager is appointed. The assets that are registered in the cover register are segregated.
III. COVER ASSETS
1. What types of assets may be included in cover pools?
  • Mortgage loans (Mortgage loans for the purpose of this question are taken to include guaranteed real-estate loans.)
(5) Comments: Residential and commercial mortgage loans are included in the collateral. Upto 15% of substitute collateral may include, cash deposits with OECD or Turkish central banks, short term debt issued by Central Bank of Turkey, or debt instruments with a treasure reimbursement state guarantee, or any other substitute collateral that may be approved by CMB of Turkey.
2. What is the geographical scope for public sector assets?
(6) Comments: Not Applicable
3. What is the geographical scope for mortgage assets?
  • Domestic
4. Are regular covered bond specific disclosure requirements to the public mandatory?
  • Yes
(7) Comments: But limited to investors and CMB of Turkey.
IV. VALUATION OF THE MORTGAGE COVER POOL & LTV CRITERIA
1. LTV is calculated using which valuation?[4]
  • Market value
2. Are there any special LTV limits used solely for calculating collateralisation rates for the cover pool (if yes, specify)?
  • Residential      
    75%
  • Commercial      
    50%
3. Do bondholders get the benefit of that portion of the loan which exceeds the LTV cap?
  • Yes
(8) Comments: Included in cover pool matching criteria.
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
V. ASSET-LIABILITY GUIDELINES
. 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
(9) Comments: Upto 15% of derivatives entered into to hedge interest rate and currency risks arising from mismatches between outstanding İTMK and their collateral can be recorded in the cover register.
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?
  • Daily
6. What types of stress scenarios are applied?
  • Dynamic
(10) Comments: Parallel shifting of interest rates and exchange rates where applicable.
7. What is the frequency of stress test calculations?
  • Weekly
. Exposure to liquidity risk
8. Is exposure to liquidity risk required to be mitigated by law or contract?
  • Yes
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.)
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
11. Is there any grace period in case of a breach of liquidity risk mitigants?
  • Lenght of period
    2 weeks
12. What is the consequence of not fixing a breach of liquidity risk mitigants?
. 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
. Overcollateralisation
15. Is mandatory minimum overcollateralisation required?
  • By legislation/regulation
  • By contractual obligation
16. What is the level of minimum mandatory overcollateralisation?

  • 2%
17. If mandatory overcollateralisation is required, are the amounts above the minimum OC level protected?
18. Is there any grace period in case of a breach of the coverage test?
  • Length of period:
    2 weeks
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
(11) Comments: A manages is appointed.
VI. COVER POOL MONITOR & BANKING SUPERVISION
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
  • Reporting on demand for special occasions
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?
  • No specific role
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
  • Other, please specify:      
(12) Comments: An issuer must appoint a qualifying audit firm authorised and listed by CMB as cover monitor and the CMB should approve such appointment. Thecover monitor should report to the CMB of the results of the examinations.
VII. SEGREGATION OF ASSETS & BANKRUPTCY REMOTENESS OF COVERED BONDS
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?
  • 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
(13) Comments: Even though it is not stated openly, a manager (pool administrator) will be appointed after the credit institutions's insolvency, and only that manager can decide to register or de-register derivatives recorded in the cover register.
6. If derivatives are permitted in the cover pool, what is their ranking?
  • Pari passu to covered bond holders
VIII. RISK WEIGHTING & COMPLIANCE WITH EUROPEAN LEGISLATION
1. Does the covered bond fulfil the criteria of UCITS 52(4)?
2. Does the covered bond legislation completely fall within the criteria of the Annex VI, Part 1, Paragraph 68 (a) to (f) of the Capital Requirements Directive (CRD)?
3. Are listed covered bonds eligible in repo transactions with the national central bank?
4. Are there any special investment regulations regarding covered bonds?
IX. ADDITIONAL INFORMATION
1. Link to National Association representing covered bond interests
  • Association
2. Link to national regulators and supervisors
3. Fact Book Country Chapter
  • Chapter
 
4. Hypostat Country Chapter
  • Chapter
 

Comments for your selection

  • 1: Banks and mortgage finance corporations with a licence from the Capital Markets Board can issue.
  • 2: Investor reporting and reporting to the Capital Markets Board is mandatory but a public disclosure is not specifically addressed in the sense that it is referred under the Pfandbriefe Act.
  • 3: Law 5582 "Law Amending the Laws Related to the Housing Finance System" enacted on 21 February 2007 and by-law on Turkish Mortgage Covered Bonds (İTMK) released by the Capital Markets Board (Serial: III, No:33) on 4 August 2007.
  • 4: In the event of issuer bankruptcy, until the İTMK are paid a Manager is appointed. The assets that are registered in the cover register are segregated.
  • 5: Residential and commercial mortgage loans are included in the collateral. Upto 15% of substitute collateral may include, cash deposits with OECD or Turkish central banks, short term debt issued by Central Bank of Turkey, or debt instruments with a treasure reimbursement state guarantee, or any other substitute collateral that may be approved by CMB of Turkey.
  • 6: Not Applicable
  • 7: But limited to investors and CMB of Turkey.
  • 8: Included in cover pool matching criteria.
  • 9: Upto 15% of derivatives entered into to hedge interest rate and currency risks arising from mismatches between outstanding İTMK and their collateral can be recorded in the cover register.
  • 10: Parallel shifting of interest rates and exchange rates where applicable.
  • 11: A manages is appointed.
  • 12: An issuer must appoint a qualifying audit firm authorised and listed by CMB as cover monitor and the CMB should approve such appointment. Thecover monitor should report to the CMB of the results of the examinations.
  • 13: Even though it is not stated openly, a manager (pool administrator) will be appointed after the credit institutions's insolvency, and only that manager can decide to register or de-register derivatives recorded in the cover register.