COVERED BONDS INVESTOR PRESENTATION - JUNE, 2019 - Tatra banka
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COVERED BONDS INVESTOR PRESENTATION JUNE, 2019
DISCLAIMER
The information and the opinions in this presentation have been prepared by Tatra banka, a.s. (Tatra banka) solely for general information purposes in
connection with a proposed offering of covered notes issued by Tatra banka (the Notes). This presentation and its contents are intended for information purposes
only and may not be reproduced in any form or further distributed to any other person or published, in whole or in part, for any purpose. Failure to comply with
this restriction may constitute a violation of applicable securities laws. Raiffeisen Bank International AG and other members of RBI group have not prepared or
approved this documents and have no liability in connection with this document or information therein or the Notes.
This presentation shall not constitute an offer to sell, or the solicitation of an offer to purchase or otherwise acquire the Notes or to enter into any legally binding
relationship with Tatra banka. This presentation is not for distribution in, nor does it constitute an offer of securities in any jurisdiction or an inducement to enter
into investment activity or any advice or recommendation with respect to the Notes. Specifically, the Notes have not been, and will not be, registered under the
United States Securities Act of 1933, as amended (the US Securities Act),or the securities laws of any state of the United States or other jurisdiction. The Notes
may not be offered or sold, directly or indirectly, within the United States or to, or for the account or benefit of U.S. Persons (as defined in Regulation S under the
US Securities Act) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act.
This presentation is being directed only at persons having professional experience in matters relating to investments in financial instruments. This presentation
is not for distribution to retail customers (non-professional clients).
Any investment decision concerning the Notes should be made only on the basis of evaluation by each prospective investor of the base prospectus, all financial
and other information incorporated therein by reference, supplements to the base prospectus (if any) and relevant final terms of the Notes, each as published on
the website of Tatra banka: www.tatrabanka.sk.
Some information in this presentation has been obtained or is based on the publicly available sources. Information has been reproduced carefully, but has not
been independently reviewed and Tatra banka cannot guarantee accuracy, adequacy, correctness or completeness of such information. Accordingly, undue
reliance should not be placed on any such information contained in this presentation. All information and opinions contained in this presentation are provided as
at the date of this presentation and are subject to change without notice.
Page | 2
TATRA BANKA: PRESENTERS
Mag. Dr. JOHANNES SCHUSTER – CHIEF FINANCIAL OFFICER
PAVOL TRUCHAN, CFA – HEAD OF TREASURY
JURAJ VALACHY, Ph.D. – SENIOR ANALYST, RESEARCH AND STRATEGY DEPARTMENT
Page | 3
KEY FACTS
Slovakia Tatra banka
o Competitive and fast converging economy that is fully integrated o Stable and well-established universal bank on Slovak market (Nr.3
into the Western economies in terms of total assets)
o Low and decreasing public debt (under 50% of GDP) o Bank deposit rating at A3 with positive outlook by Moody’s
o Rating: A+ and stable outlook by S&P and Fitch, A2 and positive o Provisional rating of Covered bond: Aaa (Moody’s)
outlook by Moody’s
o Residential prices generally in line with fundamentals Cover Pool
o Mortgage loans with max. maturity 30 years and max. LTV 80%
Banking sector secured by residential properties – base assets (min. 90% of cover
o Stable and well-capitalized banks belonging to the strong western pool)
banking groups with solid profitability o Cash, bonds – substitute assets (max. 10% of cover pool)
o Regulated jointly by ECB and NBS o Buffer of liquid assets – to cover liquidity gap in following 180 days
o No FX loans and very low volume of non-performing loans due to o Hedging derivatives – if any (currently not included in cover pool)
prudent risk management policy of all major banks
o Further potential for loan growth and cover bond issuance Covered bonds
o Dual recourse, bankruptcy remoteness, no automatic
Raiffeisen Bank International acceleration
o Leading banking group in CEE with 16.3 million customers, o Envisage orderly transfer of CB programme (in case of issuer´s
covering 14 CEE markets (including Austria), market capitalization ~ involuntary administration or bankruptcy proceeding)
6.6 billion EUR o Soft bullet structure (12/24 months)
o Rating: A3 and stable outlook by Moody’s, BBB+ and positive o Minimum mandatory OC 5%, possible voluntary OC
outlook by S&P
Page | 4
CONTENT
RBI and Tatra Banka at Glance
Slovak Republic
Slovak Banking Sector
Tatra Banka Financials
Covered Bonds and Cover Pool
Annex
Page | 5
RBI – LEADING BANKING GROUP IN CEE
~ 16.3 million customers
~ 47,000 employees
> 2,100 business outlets
Tatra banka
is a member
of RBI Group 27 markets worldwide
14 markets in CEE (incl. AT)
Market cap.: ~ € 6.6 billion
> 30 years
Page | 6
GEOGRAPHIC FOOTPRINT OF RBI
Austria, #3
Central Europe (CE) Eastern Europe (EE)
• Loans: EUR 32.3 bn
Southeastern Europe (SEE)
• Branches: 21
Czech Republic, #5 Russia, #10 o Top 5 market position in 11 countries
• Loans: EUR 11.3 bn • Loans: EUR 9.9 bn
• Branches: 137 • Branches: 184
o Strong market position with Austrian corporates focusing
on CEE
Hungary, #5 Ukraine, #4
• Loans: EUR 3.6 bn • Loans: EUR 1.5 bn
• Branches: 71 • Branches: 499
Slovakia, #3 Belarus, #6 RBI Ratings
• Loans: EUR 10.4 bn • Loans: EUR 1.1 bn
• Branches: 186 • Branches: 87 Rating Agency Long term Outlook Short term
Albania, #3 Serbia, #5
S&P BBB+ positive A-2
• Loans: EUR 0.7 bn • Loans: EUR 1.4 bn
• Branches: 78 • Branches: 88
Moody's A3 stable P-2
Bosnia & Herz., #2 Bulgaria, #6 Croatia, #5 Kosovo, #1 Romania, #4
• Loans: EUR 1.3 bn • Loans: EUR 2.7 bn • Loans: EUR 2.4 bn • Loans: EUR 0.6 bn • Loans: EUR 5.5 bn
• Branches: 102 • Branches: 146 • Branches: 79 • Branches: 48 • Branches: 422
Page | 7
TATRA BANKA OWNERSHIP STRUCTURE
Tatra Banka
78.78% 11.59% 9.63%
RB CEE region holding Tatra Banka employees Free float
o In 1991, the Austrian Raiffeisen o Introduced in 1998 o 4.8% owned by private individuals,
Group acquired 33.6% share from rest by local and foreign companies
o Returned shares sold back to
Slovak state owned banks employees via auction o Limited fluctuations of owners
o Later, Raiffeisen group acquired o No voting rights
additional shares
Source: Consolidated financial statements of Tatra banka 2018
Page | 8
TATRA BANKA GROUP OVERVIEW
Tatra Banka
The bank with the highest number
of quality banking awards in the SR
#3 in Slovak market in terms of Total assets
Tatra Asset Management
Tatra Leasing Share owner: 100%
Share owner: 100% Innovative market leader in the Slovak asset
management market.
DDS Tatra banky Tatra Residence
Share owner: 100%
Share owner: 100% Real estate agency focusing on providing services in
Supplementary pension asset management company the field of sale and leasing of residential and
(3rd pillar) commercial properties
Source: Consolidated financial statements of Tatra banka 2018
Page | 9THE MOST INNOVATIVE BANK IN SLOVAKIA
History of innovations: snapshot 1998 – 2018
Face Biometrics
06/2018
Page | 10THE SUCCESS STORY OF TATRA BANKA
o Tatra banka was established in 1990, as the first private bank in Slovakia, and quickly grew up to number 3 on the Slovak market (total assets)
o Tatra banka is a universal bank and and has a strong footprint in premium (private individuals) and corporate segment
o Steering the bank with a clear strategy:
The book of the bank
− Mission: We breakthrough the boundaries of banking
− Vision: We are the largest or the second largest bank in each of the client segments we serve
− Values: Ambition – Creativity – Courage – Partnership
o Roadmap – the execution plan of our strategy
o Strong brand promise – Leadership in innovations on the Slovak market
o Multibrand – Raiffeisen Banka and Tatra Banka
Page | 11CONTENT
RBI and Tatra Banka at Glance
Slovak Republic
Slovak Banking Sector
Tatra Banka Financials
Covered Bonds and Cover Pool
Annex
Page | 12SLOVAK ECONOMY BENEFITS FROM AUTOMOTIVE AND THE EU RECOVERY
Real GDP growth, in %
o Slovak economy demonstrated a healthy structural growth
of 3.7% in Q1 2019
5,0
4,2 4,1
o In the next couple of years, the GDP growth should be
4,0 3,2
3,1
supported by:
3,0 2,8
2,4 continued favorable external conditions (modest GDP
2,1 growth in euro area and low interest rate environment)
1,5 1,9 1,9
2,0 1,7
1,4
projected production capacity increase in the
1,0 automotive sector (Jaguar – Land Rover, Volkswagen)
-0,3
in 2019-2020
0,0
-0,9
new infrastructure projects
-1,0
2012 2013 2014 2015 2016 2017 2018
high EU funds inflow (inflow of EU fund will be strong
till 2022)
Slovakia Eurozone
Source: Eurostat
Page | 13SLOVAK ECONOMY IS A COMPETITIVE ECONOMY BASED ON STRONG
INDUSTRIAL SECTOR
Slovakia’s export destinations, % of total in 2018 Share of GVA in Slovak economy, % of total in 2018
Source: Eurostat
o Slovakia is fully integrated into the EU production chain
o The structure of Slovak economy is very similar to Germany with a strong accent on industry
Page | 14LOW GOVERNMENT DEBT, GOOD RATING AND LOW YIELDS
Government debt to GDP for 2018YE, in % Government bond rating
Moody‘s Standard and Poor's Fitch
200 Aaa AAA
Aa1 AT AA+ AT AT
150 Aa2 AA
Aa3 AA- CZ CZ
100
66 A1 CZ(+) A+ SK, SL SK
49
50 A2 SK(+), PL A
A3 A- PL PL, SL
0 Baa1 SL(+) BBB+
Denmark
Slovakia
Lithuania
Romania
Czechia
Latvia
Neth.
Greece
Finland
Austria
Lux.
Hungary
Spain
UK
Slovenia
France
Italy
Poland
Croatia
Sweden
Average
Cyprus
Belgium
Bulgaria
Malta
Ireland
Portugal
Germany
Baa2 BBB HU HU
Baa3 HU BBB-
Source: Moody’s, S&P, Fitch
Source: Eurostat
o Slovak constitutional law on „Debt brake“ prohibits government
10Y Government bond yield, in % debt to rise above 50% of GDP
2 Slovakia Germany
o Government finances are to fend off any external economic
1,5
shocks
1
o Spreads of Slovak government bonds vs. German Bunds are stable
0,5
Slovak rating reflects good and solid economy, strong
0 institutions and euro area membership
-0,5 o Still relatively low income per capita prevents agencies to give
2016 2017 2018 2019
Slovakia a better rating
Source: Macrobond
Page | 15HOUSEHOLDS ENJOY IMPROVING INCOME SITUATION
Unemployment rate (LFS), in % Nominal wage growth in economy, y-o-y in %
16% 7%
6,2%
14% 6%
12% 4,6%
5%
10% 4,2%
8% 4% 3,3%
2,9%
6% 3%
4% 2%
2%
1%
0%
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
0%
2014 2015 2016 2017 2018
Source: Eurostat Source: Statistical Office of the SR
Loans for house purchase/GDP, in %, End of March 2019
100 o In the following years, nominal wage growth should stay
at the higher level due to:
80
– stable inflation around 2% in medium term;
60
33 – productivity rise;
40
– tight labor market conditions;
20
– public wage growth by 10% in 2019 and also in
0
2020.
Czechia
Portugal
UK
France
Ireland
Romania
Estonia
Slovakia
Belgium
Spain
Sweden
Lithuania
Poland
Germany
Netherlands
Latvia
Italy
Finland
Austria
Bulgaria
Greece
Malta
Cyprus
Luxembourg
Hungary
Slovenia
Croatia
Denmark
o Households‘ indebtedness at par with the average in
other European countries
Source: Macrobond
Page | 16HOUSE PRICE DEVELOPMENT IN LINE WITH WAGE GROWTH
House price, in EUR per m2 House price/Annual Wage, Years
2 000 14
1 822
13
1 800
12
1 600 11
1 400 10
9 8,2
1 195
1 200
8
1 000 7
6
800 Flats Houses
5
600 4
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
o House price development is in line with fundamentals – strong nominal wage and employment growth
o Prices are growing across the country
o We expect house prices to grow in line with fundamentals also in the next years
Note: Price of the hypothetical 68m2 flat divided by average annual gross salary in economy
Source: NBS, Statistical Office of the SR Page | 17CONTENT
RBI and Tatra Banka at Glance
Slovak Republic
Slovak Banking Sector
Tatra Banka Financials
Covered Bonds and Cover Pool
Annex
Page | 18STRONG AND STABLE SLOVAK BANKING SECTOR
Stable banking sector Room for growth
o Not dependent on external financing - Loan/Deposit ratio o Well equipped with capital - Capital Tier 1 ratio at 16.7%
100.6%
o Room for loan growth - Loan to GDP is 67% (110% in euro-area)
o Low amount of bad loans - Share of Non-Performing Loan is
o Room for CB issuance - Only 8% of bank funding is from bonds
3.1% (2.9% in retail and 3.9% in corporate)
o No FX loans - Only 4.1% loans (0% in retail) are in FX
o No bank bail-out during 2008-2010
o Not overheated
Banking assets to GDP, in %, end of 2018 Funding structure of Slovak banking sector, end of 2018
2%
8%
400
300
Deposits from customers
200
88 Debt securities
100 Other liabilities (without equity)
0
Poland
Denmark
Portugal
Slovakia
Estonia
Czechia
Belgium
Spain
Sweden
Euro Area
Romania
Lithuania
Germany
Netherlands
Latvia
Italy
Finland
UK
Austria
Bulgaria
Greece
Slovenia
Croatia
Cyprus
Malta
France
Hungary
Ireland
90%
Source: NBS
Page | 19MACROPRUDENTIAL POLICY OF NBS
o National Bank of Slovakia closely monitors trends in financial sector
o NBS’s aim is to balance loan growth with the long-term sustainability of financial sector
o Main impact:
Restricted Debt-to-Service:
− Cost of living + Additional financial reserve over costs of living – 20 x (income - living costs)
− Stressed instalment for mortgage loans: Additional financial reserve over monthly payment for existing loans with maturity over 8Y
New legislative limit for Debt-to-Income: DTI = 8, max exposure of client up to 8 x yearly net salary (limited amount of exception is allowed)
Restricted LTV for Mortgage Loans
− LTV more than 90% - not allowed
− LTV more than 80% - currently 30% from 07/2019 20% of new volume per quarter
Loans with maturities of 30 years
Real estate value in case of purchase / building up is given as minimum of sale price, internal valuation and expert’s price
Page | 20SLOVAK BANKING SECTOR (1/2)
o Slovak banking sector keeps a strong pace of growth of average 6.2% during the last 5 years
o The sector is dominated by big international banking groups like Erste, IntesaSanPaolo, Raiffeisen, KBC, Unicredit
o Tatra banka group is the 3rd largest bank in terms of assets and keeps this position for more than a decade
o Growth in retail loans segment was dominant during the last couple of years, corporate loans were growing in a more modest way
Total assets, as of EOY, bn EUR Total assets by Slovak bank groups, Q1 2019, bn EUR
CAGR +6,2%
75 79 83 17,4 16,7
66 71 13,2
9,8
5,2 4,3 3,6 1,4
2014 2015 2016 2017 2018 SLSP VUB TB CSOB* UNCR POB Prima* OTP*
Source: NBS Source: Consolidated financial statements of banks, banks with * have individual fin.statement
Retail loans, as of EOY, bn EUR Corporate loans, as of EOY, bn EUR
CAGR +12,6% CAGR +6,5%
3,6
3,3 5,8
3,1 5,1
3,1 4,6
3,7 3,9
3,4 17 18 19
26,0 14 16
20,5 23,2
15,0 17,7
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Source: NBS Other Consumer Housing Source: NBS Page | 21SLOVAK BANKING SECTOR (2/2)
o Very favorable macroeconomic environment visibly decreases the non-performing loans for households (HH) and corporates as well
o Slovak banks maintain capital well above required levels, this opens the door for further growth
o Slovak banks deliver stable and solid profit even in an environment of low interest rate. ROE is well above the western peers
Non-performing loans/Total loans, EOY, in % Tier 1 ratio, EOY, in %
6% 18%
5%
16%
4%
3% 5,5% 14%
5,0% 4,5% 16,0% 16,5% 16,3% 16,8% 16,7%
2% 3,7%
3,1% 12%
1%
0% 10%
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Return on Equity, EOY in %
Total profit of the sector, EOY, in mn EUR
15%
800
600 10%
400 13,2%
742 5% 10,3% 11,1%
560 626 612 640 9,2% 9,2%
200
0%
0 2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
Source: NBS Page | 22LOANS TO HOUSEHOLDS SLOWING DOWN, CORPORATE LOANS KEEP
DECENT DYNAMICS
Annual growth of banking sector loans, in % based on monthly outstanding stock of loans
16%
Retail loans
14%
12%
10% 9,7%
8%
6,6%
6%
4%
Corporate loans
2%
0%
-2%
2014 2015 2016 2017 2018 2019
Source: NBS
o Retail loans were growing faster than fundamentals, but recent NBS measures should bring this development in line with strongly evolving
fundamentals
o Corporate loans are following the nominal GDP growth
Page | 23HOUSING LOANS – MARKET SHARE
Market share of Tatra Banka in housing loans Market Share of individual banks on housing loans, March 2019
35%
17%
30%
25%
16%
15,6% 20%
15% 29%
15% 24%
10%
16%
13%
5% 9%
6%
1% 3%
14% 0%
03 04 05 06 07 08 09 10 11 12 01 02 03 Tatra SLSP VUB CSOB UNCR Prima Poštová Others
2018 2019 banka
Source: NBS
Source: Tatra banka, NBS
o Tatra Banka historically keeps a slightly growing market share of Slovak housing loan market of around 16%
o The Bank is not hunting for market share. We keep our risk standard, while improving the client service
Page | 24CONTENT
RBI and Tatra Banka at Glance
Slovak Republic
Slovak Banking Sector
Tatra Banka Financials
Covered Bonds and Cover Pool
Annex
Page | 25TATRA BANKA GROUP
o Tatra Banka keeps strong and healthy growth of assets Total Assets, EOY, in EUR mn
o We keep pace with market and our retail loan portfolio went by 15 000
mainly thanks to mortgage loans
10 000
o In the corporate segment we keep our leading position in
segment of domestic non-financial corporations 12 503 13 196
5 000 11 373
0
2016 2017 2018
Retail loans, EOY, in EUR mn Corporate loans, EOY, in EUR mn
7 000
Housing Consumer Other 5 000
6 000
1 017
5 000 4 000
896
871
4 000 867 777 3 000
3 000 616
2 000 4 126 4 388 4 377
2 000 3 999
3 469
2 935 1 000
1 000
0 0
2016 2017 2018 2016 2017 2018
Source: Consolidated financial statements of Tatra banka, 2016-2018
Page | 26KEY PERFORMANCE INDICATORS
o Prudent risk policy helps us to decrease NPL to the very low level
o Our capital is high enough to safeguard further growth and meet all regulatory requirement by wide margin
o Tatra banka is able to deliver decent and very stable profit every year
o Our ROE was at the level of 12% in 2018 and these results make Tatra Banka very important part of RBI group
Non-Performing loans, as % of total loans Tier 1 indicator of Tatra banka group, %
16%
4,0%
3,0% 14%
2,0% 3,6% 15,3% 15,1% 15,4%
2,9% 12%
1,0% 2,4%
0,0% 10%
2016 2017 2018 2016 2017 2018
Profit after tax of Tatra banka group, in EUR mn ROE of Tatra banka group, %
150 15%
100 10%
126 124 13,5% 13,4% 12,0%
120 5%
50
0 0%
2016 2017 2018 2016 2017 2018
Source: Consolidated financial statements of Tatra banka, 2016-2018 Page | 27BELOW MARKET NPL RATE ON HOUSEHOLD LOANS AND MORTGAGE LOANS
Loans to Households: NPL/Total Loans in %, from 2014 to March 2019 Housing Loans: NPL/Total Loans in %, from 2014 to March 2019
6% 4,0%
5% 3,5%
3,0%
4%
2,5%
2,9%
3% 2,0%
1,5% 1,2%
2%
2,0% 1,0%
1% 1,1%
0,5%
0% 0,0%
2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019
Tatra banka Banking Sector Tatra banka Banking Sector
o Prudent risk policy of Tatra banka results in lower NPL in household loans than banking sector has
o The similar holds also for the Housing loans segment
Source: Tatra banka, NBS Page | 28CAPITAL ADEQUACY RATIOS – STRONG AND SUSTAINABLE CAR
CAD Ratios, EOP value in %
o Tatra banka comfortably operates above minimum regulatory
21% capital requirements (as of March 2019):
19,72% CET1 ratio 10,97% (11,97% including Pillar 2 guidance)
20%
Required total CAD ratio of 14,47%
19%
17,95%
17,74% 17,69%
18%
o Tatra banka replaced part of its subordinated debt at amount
17% of EUR 100 mn with the higher quality AT1 capital (high
trigger of 7%)
16% 15,62% 15,58% 15,61%
15%
14,11% 13,96% 13,91%
14%
13%
12%
12.2016 12.2017 12.2018 03.2019
CAD CET1 CAD T1 CAD
Source: Consolidated financial statements of Tatra banka 2017 and 2018 Page | 29CAPITAL ADEQUACY REQUIREMENTS – MARCH 2019
TBG Capital requirements/Actual (03/2019)
o 2018 SREP P2R of 1.25%, and P2G of 1.0% (unchanged from 2017).
Actual
Tatra banka is one of the banks with best SREP rating in Slovakia.
Buffer 17,95%
3,48%
o Combined buffer requirement in 03/2019:
Buffer Actual
3,14% 15,61% Tier2R
2.50% capital conservation buffer
Buffer Actual 2,00%
13,91% 1.00% systemic risk buffer
2,94% AT1R
1,50% 0.50% other systematically important institutions
0.22% countercyclical buffer (for domestic transactions)
CBR+P2R Total capital requirement = 14,47% Legend:
CET1 requirement = 10,97%
TIER1 requirement = 12,47%
6,47%
Tier1R P1R Pillar 1 requirement
CET1R 12,47% P2R SREP Pillar 2 requirement
10,97% P2 Guidance Pillar 2 guidance
CBR Combined buffer requirement, includes:
• Capital conservation buffer
• Countercyclical buffer
P1R
4,50% • Systemic risk buffer
• O-SII buffer
AT1R Additional Tier 1 requirement
CET1 Tier 1 Total Capital
Source: Tatra banka Page | 30ASSETS AND LIABILITIES BY SEGMENTS
Assets, in EUR mn Liabilities, in EUR mn
13.196 13.196
12.503 12.503
2.831
3.819 2.532 (21%)
3.912 (29%) (20%)
(31%) 754
581 (6%)
176 (5%)
239 (1%)
(2%)
6.126 6.721 7.255
5.251 (46%) (54%) (55%)
(42%)
2.739 2.667 1.455 1.008
(22%) (20%) (12%) (8%)
1.215 1.349
362 407 (10%) (10%)
(3%) (3%)
31. 12. 2017 31. 12. 2018
31. 12. 2017 31. 12. 2018
Corporate customers Retail customers Equity and other
Financial institutions and public sector Investment banking and treasury
Source: Consolidated financial statements of Tatra banka, 2016-2018
Page | 31MATURITY PROFILE OF ISSUED BONDS
Volumes as of 31/5/2019, in EUR mn
300
250
Covered bonds Senior unsecured (Tatra Leasing)
200
150 281
100
50 10
50 46 60 50 50
29 10
0
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
o As of 31st of May 2019 the outstanding amount of bonds issued by Tatra banka group was 585 mn EUR
o The majority of issued bonds (575 out of 585 mn EUR) are covered bonds (re-registered mortgage bonds issued under legislation valid till
the end of 2017)
o Senior unsecured bonds represent only 10 mn EUR from total outstanding (issued by Tatra Leasing)
o Tatra banka intends to regularly tap the covered bond market going forward
Page | 32CONTENT
RBI and Tatra Banka at Glance
Slovak Republic
Slovak Banking Sector
Tatra Banka
Covered Bonds and Cover Pool
Annex
Page | 33SLOVAK COVERED BONDS LEGAL FRAMEWORK – OVERVIEW (1/4)
o New covered bonds (CB) legislation valid since January 2018
o Issuer can be only a bank with prior consent of National Bank of Slovakia (NBS) to issue covered bonds
o NBS supervision, issuer´s reporting obtained quarterly
o Covered bonds Administrator/Monitor – an independent individual appointed by NBS
verifies issuer´s compliance with all legal requirements in respect of covered bonds
issues a written certificate confirming that the issuer has sufficient coverage for a new bond that is to be issued
yearly submits to NBS report on covered bonds programme for previous year
o Mandatory maintenance of Covered Bonds Register by issuer
keeping records of all components of the CB programme
all cover assets entered in the CB Register constitute a separate estate of the issuer and may only be used to satisfy claims of CB bondholders (i.e.
on-balance sheet segregation of cover assets from the issuer´s general estate)
o Enhanced insolvency regime
dual recourse, bankruptcy remoteness, no automatic acceleration of CB
envisage orderly transfer of CB programme (in case of issuer´s involuntary administration or bankruptcy proceeding) –> soft bullet structure (12/24
months)
Page | 34SLOVAK COVERED BONDS LEGAL FRAMEWORK – OVERVIEW (2/4)
o Cover Pool Composition:
Base (Primary) Assets
- At least 90% of the cover pool (excl. LA)
- Residential mortgage loans only to consumers, max. tenor 30y
- LTV max. 80%
- Properties in the Slovak Republic; first rank security (subject to very limited exemptions)
- Exclusion of loans if debtor is considered defaulted (as per Article 178 (1) of Regulation (EU) No. 575/2013 - CRR)
Substitute Assets
- Max. 10% of the cover pool (excl. LA)
- Cash or deposits with NBS, ECB, EU Member state central bank and other assets that meet conditions under Article 129 (1) (c) of CRR
Hedging derivatives (if any)
- Purpose is to manage and mitigate currency risk or interest risk connected with issued covered bonds
Buffer of Liquid Assets (LA)
- Required to cover the maximum liquidity gap within the CB programme over next 180 days, if any
- Tier 1 and Tier 2A assets under Articles 10 and 11 of Regulation (EU) 2015/61
- Value of LA is a part of coverage ratio
Page | 35SLOVAK COVERED BONDS LEGAL FRAMEWORK – OVERVIEW (3/4)
o Other key requirements for the CB programme/issuer:
Minimum overcollateralization of 5%
- Value of the cover pool must be at least 105% of issuer´s liabilities under CB programme (i.e. outstanding covered bonds and related costs)
- Voluntary higher OC enabled
- Obligatory calculation of coverage ratio at the end of a month
180-day liquidity coverage test
- Daily calculation of expected positive and negative cash flows within the CB programme during the following 180 days
- In case of negative gap, liquid assets must be allocated in the cover pool to cover it
Stress testing
- Performed at least once a year (on data as of 31 December of preceding year)
- Includes test for credit risk, interest rate risk, currency risk, liquidity risk, counterparty risk, operational risk and risk of decrease in prices of immovable
property
Page | 36SLOVAK COVERED BONDS LEGAL FRAMEWORK – OVERVIEW (4/4)
o Insolvency, Transfer of CB programme
No automatic acceleration; the trustee operates the CB programme separately from the general estate of the issuer
Process governed by the Bankruptcy Act and under NBS supervision
The trustee considers the level of satisfaction of the CB holder in all scenarios and acts with due professional care for the benefit of all CB holders
Preferred scenario – orderly transfer of the CB programme
- The transfer should be completed within one year from notification of the NBS; another one year extension can be requested
- The payment terms of the CBs are modified upon notification (soft bullet extension):
- 1st month: all obligation in full according to original terms
- 2nd – 12th months: interest payments of CBs in full, but maturity of CBs with residual maturity expiring within 11 months is prolonged
by another 12 months (or max. 24 months in case of another extension)
- The transferee bank will assume the whole cover pool and all CB obligations without modifications
In case of failure to transfer the whole CB programme, the trustee can sell individual cover assets (loans) in order to satisfy due claims of CB
holders
Failing all above, the trustee terminates the operation of the CB programme – CB will accelerate and the cover pool will be liquidated
Page | 37COMPARISON OF COVERED BONDS FRAMEWORKS
Slovakia Austria Poland Germany (Pfandbriefe)
Universal credit institution with a prior Universal credit institution with a special
Specialized credit institution Universal credit institution with a special
Issuer approval from National Bank of license
license
Slovakia for issuing covered bonds
Polish Financial Supervision
Bundesanstalt fur
Regulatory supervision National Bank of Slovakia (NBS) Financial Market Authority (FMA) Authority (Komisja Nadzoru
Finanzdienstleistungsaufsicht (BaFin)
Finansowego, KNF)
Mortgages, public sector loans,
Residential mortgage loans, up to 30 Mortgages, public sector loans, eligible Mortgages, public sector loans
Primary Assets registered ship mortgages, registered
years granted to consumers bonds
liens on registered aircrafts
EEA, USA, Canada, Switzerland, Japan,
Underlying Assets Location Slovakia EEA/ Switzerland Poland (Mortgage CBs)
Australia, New Zealand and Singapore
Max. LTV 80% 60% (HypBG) 80% (Residential), 60% (Commercial) 60%
10% of cover pool (excl. liquid
Substitution Assets 15% of the amount of issued CBs 15% of the amount of issued CBs 20% of the amount of issued CBs
assets)
Minimum legal OC 5% 2% 10% 2%
Coverage of the maximum liquidity Liquidity buffer to cover CB interest Specific coverage of liquidity risk over a
gap within CBs programme over the “Natural” matching (matching without the payments in 6M; 180 day period;
next 180 days (daily performance); use of off-balance sheet instruments) and
Mitigation of risks Coverage test (at least semi-annually), Hedging derivatives might be registered
Hedging derivatives possible; stress testing; Hedging derivatives might
liquidity tests (at least quarterly); in the cover pool;
Stress testing at least yearly be registered in the cover pool
Mandatory FX risk limitation Stress testing weekly
Assets in the cover pool are fully In case of bankruptcy of a mortgage bank
segregated from the general the cover register shall constitute a
Assets within the cover register are
insolvency estate of the bankrupt separate bankruptcy estate which may
exempt from bankruptcy proceedings.
bank. The general insolvency trustee No acceleration of covered bonds be used exclusively to satisfy claims of
After the launching of the insolvency
Bankruptcy observes special procedures that are Covered bond creditors have preferential covered bondholders. The court appoints
proceedings, a special cover pool
aimed to extend covered bonds' claim on the cover assets the curator who represents the rights of
administrator carries out the
maturity in the event of bankruptcy covered bondholders. The soft-bullet
administration of the cover assets
and postpone immediate maturity of the covered bonds is triggered
acceleration. automatically after insolvency.
Independent Cover Pool Monitor Yes Yes Yes Yes
Source: EBA report on covered bonds as of 20 December 2016, www.ecbc.eu Page | 38REGULATORY OVERVIEW
o Regulatory classification for different rating levels of a typical Slovak EUR covered bond benchmark
UCITS CRR
EEA Solvency II LCR ECB repo CBPP3
Art. 52 (4) risk weight
AAA ✔ ✔ 10% ✔ 1(B)* ✔ ✔
Slovak
covered AA ✔ ✔ 10% ✔ 1(B) ✔ ✔
bonds
A ✔ ✔ 20% 2A ✔ ✔
DE, FR, NL, … ✔ ✔ 10% ✔ 1(B) ✔ ✔
Other
selected POL, NOR ✔ ✔ 10% ✔ 1(B) ✔
covered
bonds CAN 20% 2A ✔
AUS, NZD 20% 2A
*Level 1(B) LCR assumes min EUR 500mn issue size, covered bonds with min EUR 250mn can achieve 2A LCR level
Page | 39COVERED BONDS IN TATRA BANKA – BONDS OVERVIEW
o Nominal Value of Outstanding Bonds1) : 573 800 000 EUR o Provisional rating by Moody´s: Aaa
o Currency: EUR o Programme Size2): EUR 3,000,000,000
o Average Residual Life: 2,8Y o Listing: Bratislava Stock Exchange
o Interest Rate Type: 52% float, 48% fix o Clearing: Central Securities Depository,
Euroclear, Clearstream
o Number of Issues: 9
o Paying Agent: Tatra banka
o Governing Law: Slovak
o Over-collateralisation: 49,68%
300 Maturity Profile
250
200
In mn EUR
150
280
100
50
50 46 60 50 50 10
28
0
2019 2020 2021 2023 2024 2025 2026 2031
1) As of 31.5.2019, covered bonds programme contain only Mortgage bonds issued till 31.12.2017, which were on 14 December 2018 reregistered in the CB Register and since then are deemed as the covered bonds
2) includes covered bonds/ senior /senior non-preferred/ subordinated bonds Page | 40COVERED BONDS IN TATRA BANKA – COVER POOL OVERVIEW (1/2)
o Total Assets (incl. accrued interest), o/w: EUR 860 675 788 Residual Life (in years)
3%
Primary assets (outstanding nominal 9%
EUR 807 964 385
value) (25; 30>
30%
13% (20; 25>
Liquid assets (market value) EUR 52 711 403
(15; 20>
Substitute assets (market value) -- (10; 15>
(5; 10>
o Type of primary assets Slovak residential mortgage loans
22%
o Average Residual Life of Loans 17.37 years 23%
o Number of Borrowers 19 610
Purpose of loans
o Number of Loans 19 802
2%
9%
o Currency of Loans EUR
acquisition
13%
o Interest Rate Type of Loans administrated fixed rate construction
repayment
o Average Time of Drawing 5.34 years other
58%
maintenance
18%
o Average Actual LTV 48.76%
o Loans more than 90 days past due 0.00%
Source: Cover Pool Report as of 31/5/2019
Page | 41COVERED BONDS IN TATRA BANKA – COVER POOL OVERVIEW (2/2)
Distribution by actual LTV Size of Outstanding Loans, in EUR ths
9% (70%; 80%>
41%
22% (60%; 70%>
19%
11% 11% 9%
6% 4%
(0; 25> (25; 50> (50; 75> (75; 100> (100; 125> (125; 150> >150
21% (50%; 60%>
Loans by Regions
17% (40%; 50%>
39%
31%
11% 10% 10% 9% 9% 7% 6%
31. 5. 2019 Bratislava Košice Žilina Trnava Prešov Nitra Trenčín Banská Bystrica
Source: Cover Pool Report as of 31/5/2019
Page | 42CONTENT
RBI and Tatra Banka at Glance
Slovak Republic
Slovak Banking Sector
Tatra Banka
Covered Bonds and Cover Pool
Annex
Page | 43UNDERWRITING PROCESS
o Target segment defined as:
Citizen of Slovak Republic that has verified income
- employees – verified in governmental Social Insurance Application (automated verification)
- entrepreneurs – verified official Tax declaration in Tax office
- clients with salary certificate (not possible to be verified in SIA)
- in some cases additional documentation is needed (CA statements, income confirmation from employer)
Foreign permanent residents have stricter acceptance criteria (e. g. lower max. LTV, limited loan purpose)
All clients must reach creditworthiness criteria required by the bank
o Income is always checked. However, only exception is Refinancing loan when (1) it does not exceed increase of 2,000 Eur or 5% of loan amount; (2) new
instalment is lower than current one and (3) client fullfils creditworthiness of the bank
o Application and behavioral scorecards in place - statistical, developed internally on in-house historical data, validated in line with regulation and HO
market standards, quarterly recalibrated to adjust for changes in recent risk profile
o Maximum instalment (also stressed) based on risk parameters and interest rate has to comply with disposable - and debt to income limits
o The maximum LTV is determined by a matrix that takes into account collateral location and Universal Rating Grade of client (PD rating according RBI
Master Scale)
o Eligibility criteria
K.O. criterion: Execution orders, Bankruptcy, Internal payment history and other internal databases checks are in place, Internal negative
information
Credit Bureau information about payment history and existing loan products is transferred and evaluated automatically. It is used also for
check of existing instalments amount (repayment capacity calculation purposes) and for refinancing loans (comparison of existing and new
instalment, outstanding approximation, etc.) and for calculation of maximum acceptable limit of customer on market level.
Page | 44COLLATERAL MANAGEMENT
o Description of the appraisal process - initial valuation: o In case the loan payment is past-due
External appraiser chosen by client (max 12m old, w/o negative Usually after 90 Days-Past-Due - voluntary auction sale or a voluntary
experience of appraisers) + full review by TB internal appraiser auction. It can be done anytime - with or without prior contract termination
External appraiser chosen by TB (selected by TB ) + full review Termination of loan is usually 180-200 DPD
by TB internal appraiser Auction is always after termination, usually between 360-720 DPD.
During internal review process, we use price map or web sites
of reliable real estate agencies as a support tool to verify value o Encumbrance
estimated by the external appraiser
Tatra banka accepts when a property is subject of more than one
Anyway, the collateral is always appraised by certified encumbrance only in following cases:
appraiser
-preferential rights of Housing Cooperatives;
-any rights (incl. preferential) of the State Housing Development Fund
o Collateral periodical valuation
Yearly statistical revaluation method is applied, based on o In the all other cases Tatra banka shall have preferential rights, since the
comparative method and price map national legislation regulates the payment of claims based on their order.
Ex-post quality check of appraisals are done in collateral The priority in the order is important in case of execution of sale deed.
management on regular basis Preferential claim is paid first.
Whitelist and blacklist appraisers are monitored
o Property insurance
Real estate insurance is a basic condition during whole life of
loan
Not insured real estates are covered by portfolio insurance with
UNIQA.
Page | 45AWARDS
o Bank of the Year 2018
"Best Slovak Bank " awarded by Euromoney – for the 14th year in a row
"Best Bank" by Global Finance and EMEA Finance magazines.
o Private banking recognized as a leader once again
"Best Private Bank" from EMEA Finance in 2018 - bank’s private banking service
o Winner in Central and Eastern Europe
"Best Digital Bank in Slovakia " from Global Finance - Our innovative approach has been recognized by this magazine. Our online offering
of savings, loans, and investment products as well as our web design were declared the best in Central and Eastern Europe, as was our
corporate business banking service.
Page | 46more than
130
awards since its
foundation
in 1990
Page | 47CONTACTS
Tatra banka
Pavol Truchan, CFA
Head of Treasury
Tel: +421-2-5919 1702
e-mail.: pavol_truchan@tatrabanka.sk
Dana Rudkovská
Primary Issuance Specialist
Treasury Department
Tel.: +421 2 5919 1468
e-mail: dana_rudkovska@tatrabanka.sk
Juraj Valachy, Ph.D.
Senior Analyst
Reserch and Strategy Dept.
Tel.: +421 2 5919 2033
e-mail: juraj_valachy@tatrabanka.sk
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