National set to mandate short-dated covered bond


National Bank of Greece (NBG) is close to mandating a 300-million-to-500-million-euro three-year covered bond, according to sources familiar with the matter, which would be the first Greek bank bond sold since 2014.

The market has been on the lookout for Greek bank issuance ever since the sovereign sold its first euro benchmark in three years, a 3-billion-euro issue with 4.37 percent maturing in August 2022 at a 4.625 percent yield, in late July.

The country’s banking sector is desperate to wean itself off the costly emergency liquidity assistance (ELA) on which it has been dependent since 2015.

A covered bond transaction – the safest and cheapest form of bank debt – would be a natural route for an issuer to regain market access and help normalize its funding profile.

The format would give bondholders additional comfort, particularly after they were asked to swap their senior and subordinated debt into equity to help plug a combined 14.4-billion-euro capital hole across the four largest banks in 2015 as they crumbled under an exodus of deposits and a spike in bad loans.

NBG confirmed to IFR on Monday that it was contemplating a covered bond issue, but that it had not yet mandated banks.

The bank listed a “return to modest primary capital markets activity” among its strategic objectives in a corporate update earlier this year.

It is on track to eliminate its ELA funding in the short term, having reduced its exposure to 2.6 billion euros from a high of 17.6 billion euros in the second quarter of 2015.

“Execution of remaining capital actions and other initiatives, expected during the next few months, will permit NBG to disengage fully from ELA,” it noted in a recent presentation.