Financial instrument of low investment risk
What is a covered bond?
A covered bond is an instrument having been present in the Polish capital market since the year 2000. It is a debt security originated solely by mortgage banks, which is issued on the basis of and secured by the bank’s debt claims due to the loans granted by the bank, entered into the register of covered bonds’ collaterals.
Two types of covered bonds may be distinguished:
Covered bonds represent a financial instrument characterised by a low investment risk, resulting from the statutory requirements of multi-level security of the issue thereof and trading therein by the issuer. The key factors reducing the risk of investments in such securities to a minimum include:
All cash benefits consist in the payout of interest and redemption of covered bonds in the manner and on dates specified in the issue terms and conditions. Interest is paid out on the basis of fixed or variable interest rates, on dates marked on interest coupons attached to the covered bond. The frequency of interest payout is determined for each issue on a case-by-case basis. The maturity of covered bonds issued to date by mBank Hipoteczny S.A. is from 2.5 to 15 years. The primary objective of the mortgage banking is to fund long-term capital for real property financing; therefore those are securities with a primary long redemption term. It is important for investors that with the active secondary market they may liquidate their investment and sell the covered letters irrespective of their maturities. Such a possibility is ensured by the so-called market maker or the bank making the primary and secondary market, which is mBank for mBank Hipoteczny.