Legal framework for the operation of mortgage banks


Statutory limits


Covered bonds are dual-recourse bonds, with a claim against both the issuer and a cover pool of high-quality assets, issued in Poland under specific covered bond legislation providing a number of requirements and limits, as set out in the Act of 29 August 1997 on Covered Bonds and Mortgage Banks (Journal of Laws of 2016, item 1771).


  • limit of total outstanding covered bonds – the total nominal value of covered bonds outstanding cannot exceed 40 times own funds of the mortgage bank;
  • minimum overcollateralisation at 10% – the sum of nominal amounts of mortgage loans and other assets in the cover pool, constituting the basis for the issue of covered bonds, cannot be lower than 110% of the total nominal value of outstanding covered bonds, while the mortgage loans constituting the basis for the issue of covered bonds, cannot be lower than 85% of the total nominal value of outstanding covered bonds (limits set separately for mortgage and public covered bonds);
  • interest coverage – interest income on mortgage loans constituting the basis for the issue of covered bonds and other rights and funds of the mortgage bank allowed by the Act cannot be lower than the interest expense on outstanding covered bonds (limits set separately for mortgage and public covered bonds).

Useful links


For more information about mortgage loans and covered bonds visit the following websites:





Mortgage loans constituting coverage for covered bonds


Mortgage covered bonds may be issued solely on the basis of loans backed by mortgage on real estate located in the Republic of Poland, entered in the land and mortgage register with the first rank. In the case of public covered bonds, the basis for the issue is defined in Article 3(2) of the Act on Covered Bonds and Mortgage Banks.


The value of the mortgage bank’s credit claims is determined according to the mortgage lending value of the real estate (BHWN), i.e. the conservative valuation of the credited real estate, taking into account only those features of the property that will survive until final maturity of the loan. In addition, the assets constituting the basis for the issue of covered bonds are segregated through the entry into the cover pool register, which fullfil following eligibility criteria:

  • the amount of a single mortgage-backed loan as at the date of granting or purchasing the loan cannot exceed the mortgage lending value; and
  • a single mortgage loan or credit claim may be refinanced with the funds raised through the issue of covered bonds up to 60% of the mortgage lending value, and in the case of residential real property, within the meaning of Article 4(1)(75) of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms (…) – up to 80% of the mortgage lending value;
  • the total amount of mortgage loans in respect of loans granted and purchased beyond 60% of the mortgage lending value may not exceed 30% of the total amount of the mortgage bank’s mortgage-backed assets;
  • credit claims of investment projects under construction cannot exceed 10% of the total value of the assets constituting the basis for the issue of mortgage covered bonds; additionally, within this limit, loans backed with mortgages on land cannot exceed 10%

Monitoring of cover pool register


The mortgage bank is required to maintain the cover pool register, in which the following items are entered separately:

  • mortgage loans granted or purchased by the mortgage bank,
  • substitute assets constituting the basis for issuing covered bonds,
  • assets that form the liquidity buffer.

The maintainance of the cover pool register is regulated by the Act on Covered Bonds and Mortgage Banks and Recommendation K of the Polish Financial Supervision Authority (PFSA) on the rules for maintaining the cover pool register by mortgage banks.


The ongoing supervision over the cover pool register is exercised by an independent cover pool monitor (appointed by PFSA).








Substitute cover assets and liquidity buffer


The mortgage bank may use following assets as substitute cover:

  • invested in securities, referred to in Article 16(1)(3) of the Act on Covered Bonds and Mortgage Banks;
  • deposited with the National Bank of Poland;
  • held in cash.

In addition, the mortgage bank is obliged to keep, separately for mortgage covered bonds and public covered bonds, a liquidity buffer from the funds referred to above, of not less than the total amount of the nominal value of interest on respective outstanding mortgage covered bonds or public covered bonds, due within the next 6 months. The funds intended for the liquidity buffer cannot constitute the basis for issuing covered bonds.


If covered bonds are issued in any currency other than the mortgage loans or other cover assets, the mortgage bank is required to hedge currency risk with the use of derivative instruments. 


Security guarantees under bankruptcy law


The mortgage banks are subject to a separate, independent from the issuer, bankruptcy procedure which is intended to ensure the highest recovery for cover bonds holders. In particular, it provides for:

  • a separate bankruptcy estate,
  • extension of maturity by 12 months in the case of the issuer’s bankruptcy,
  • launch of the pass-through procedure only in the case of a negative result of the Coverage Balance Test or Liquidity Test.

In addition, covered bonds are excluded from the bail-in procedure in the process of the mortgage bank restructuring and resolution.