The Polish government is finally making progress with reforms to the country's corporate bond law. And that is good news for the securitization market that has, up until now, been severely restricted by prohibitive legislation on the establishment of special purpose vehicles and the need for deals to be issued with bank guarantees.
The amendments to the law have been under discussion for some time. The first bone of contention has been the need for banks to act as the legal guarantor on all public bond issues in the event of default. Also causing a nuisance is the company law that requires companies to have at least a three-year balance sheet history before they can acquire bond insurance, which effectively prevents SPVs from being set up.
Now, however, those restrictions are close to being scrapped. The amendments have already passed through the lower house of the Polish parliament, and now only have to be ratified by the upper house and receive the president's blessing. Those approvals are thought to be a formality and the final confirmation of the amendments is expected soon.
Jurgen Haferkorn, an associate director for the emerging markets with ratings agency Fitch IBCA's ABS team, considers this development very significant for the emergence of a securitization market in Poland. "Up until now, the banks have had a lot of responsibility and liability for long-term bonds; it was pretty restrictive," he said. "Now it will be much easier to enter the market because the amendments remove some of the strict requirements with regard to equity, which had prevented other deals."
Haferkorn also noted other developments that are beneficial to the use of securitization techniques within the country and the development of a wider investor base. "The tax law has also been amended for the benefit of securitization and there has been a very significant reform of the pension system," he said. "Now 20% of premiums can be paid into private pensions, which provides a solid background for a wider investor base."
"Previously, pension funds could only invest in treasuries and didn't have much scope [to choose] what they invested in," he continued. "Now they will be able to look towards the longer-term debt market and that should be good news for asset-backed bonds."
Unlike the pattern in many western European countries, Haferkorn predicts that the MBS market will not be first out of the blocks. "In terms of market development, what is likely is that you will see consumer asset-backed deals first," he said. "The mortgage market is pretty underdeveloped and Poland has one of the lowest home ownership rates on the continent. There is huge potential for other asset classes, however, such as credit card deals or auto loans transactions."
To date, Poland has only seen one publicly issued securitization - a 50 million Zloty ($11.4 million) transaction issued by BRE Bank last July (ASRI 7/26/1999 p1.) - but Haferkorn is confident of many more in the future. "The interest has always been there, but so far it has been on a private placement basis," he said. "But if you look at the volumes that are possible - Poland has 39 million inhabitants and the largest GDP in Eastern Europe - it certainly has a strong potential for securitization."