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Jacek Jastrzębski on the development of the covered bond market in Poland

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Jacek Jastrzębski, Chair of Komisja Nadzoru Finansowego (KNF), participated in the announcement of the European Financial Congress’s recommendation titled ‘Covered bond: an underestimated financial instrument’ and in a discussion on development opportunities for the covered bond market in Poland. The meeting also included a presentation of the key conclusions and proposals for action in this area, and a round table debate on  further activities for the popularisation of covered bonds in the Polish market.

Jacek Jastrzębski thanked the organisers of the event for noticing the activity of the Polish financial supervisor related to the recent years’ work aimed at really popularising the covered bond. ‘We’ve been trying to diagnose why this market is not yet a market that lives up to our expectations and ambitions. As our recent successful initiatives, I should mention, first of all, the discussion and workshops carried out in a large group of market participants regarding the optimum covered bond issue model. We’ve walked a very long path in this respect. Our work has resulted in the identification of the optimum mortgage banking model in the ‘light’ version. We’ve come to the conclusion that some requirements concerning mortgage banks as banks should be reviewed. In particular, there have been amendments to the regulations on outsourcing,’ Jacek Jastrzębski said. He added that the financial supervisor’s work in that field had been as inclusive as possible. ‘We made sure that the working teams had a broad representative structure. Such work design has allowed us to reach a consensus. The way we were doing that work gives us strong grounds for claiming that the solution regarding the model of a specialised issuance vehicle has been verified as the optimum one. I guess the discussion on this is fundamentally over. It’s a big achievement,’ he said.

Jacek Jastrzębski has pointed out that financial supervisors and regulators in Poland have been trying, for over 25 years, to figure out how to animate the covered bond market and overcome the historic feature of that market, which is the structural maturity mismatch between assets and liabilities in the Polish banking sector. ‘We’ve realised that as we’ve failed to adjust it with market forces for more than 25 years, then repeating constantly that it is a problem and that we should face it will not improve the situation. We responded by engaging in the Long-Term Funding Ratio project. The project is not popular and we know that not everybody is delighted with the introduction of the ratio as a supervisory requirement. Yet, it’s an expression of our assessment of those 25 years, when the ‘soft’ efforts made by the supervisors and regulators have been of no avail,’ he said. ‘Therefore, we’ve come to the conclusion that it’s a unique moment of a very favourable macroeconomic situation for banks in terms of interest rates and net interest margin which allows the dream of whole generations of supervisors to come true and which allows firmer action to be taken to eliminate the maturity mismatch,’ he added. He emphasised that the sector’s current financial performance and the still high level of the net interest margin provided grounds for doing that just now. ‘In order to stop kicking the can down the road while waiting for better times. As better times may not come. The long-term funding ratio solves the supply issue; while implementing the stability goals, we also implement one of the goals to appreciate the covered bond as a financial instrument in the capital market by properly shaping the supply side,’ he said.

Jacek Jastrzębski on the development of the covered bond market in Poland