Opinion of the European Central Bank of 8 September 2017 on the legal framework for covered bonds, reporting of credit data, macroprudential powers and tools, and SSM common procedures (CON/2017/36)
Date: 2017-09-08
Institutions: European Central Bank
Subjects: EU banking union, Slovakia, banking supervision, bond, exchange of information, financial stability, mortgage bank, national law, real estate credit, statistics

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 8 September 2017  

on the legal framework for covered bonds, reporting of credit data, macroprudential powers and 

tools, and SSM common procedures 

(CON/2017/36) 

Introduction and legal basis 

On 12 July 2017 the European Central Bank (ECB) received a request from the Ministry of Finance of the 

Slovak  Republic  for  an  opinion  on  a  draft  law  amending  the  Law  on  banking  and  certain  other  laws 

(hereinafter the ‘draft law’). 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 

Functioning  of  the  European  Union  and  the  third,  fourth  and  sixth  indents  of  Article 2(1)  of  Council 
Decision  98/415/EC1,  as  the  draft  law  relates  to  Národná  banka  Slovenska,  the  collection,  compilation 

and  distribution  of  monetary,  financial,  banking,  payment  systems  and  balance  of  payments  statistics, 

rules  applicable  to  financial  institutions  insofar  as  they  materially  influence  the  stability  of  financial 

institutions  and  markets  and  the  ECB’s  specific  tasks  concerning  the  prudential  supervision  of  credit 

institutions pursuant to Article 127(6) of the Treaty. In accordance with the first sentence of Article 17.5 of 

the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion. 

1. 

Purpose of the draft law 

1.1  The  main  purpose  of  the  draft  law  is  to  comprehensively  reform  the  existing  system  of  mortgage 

bank financing in Slovakia, which is based on mortgage bonds, with the aim of replacing mortgage 

bonds with covered bonds. 

1.2  The draft law contains a number of detailed provisions relating to covered bonds. 

(a) 

It  defines  the  institutions  allowed  to  issue  covered  bonds,  i.e.  only  banks  established  in 

Slovakia. 

(b) 

It outlines additional authorisation procedures in the form of prior approval by Národná banka 

Slovenska (NBS) concerning covered bond issuers to perform activities related to the covered 

bond programme.  

(c) 

It specifies the legal status of covered bonds and the types of assets eligible for inclusion in 

the cover pool. These assets include: (i) mortgage loans with a maximum maturity of 30 years, 

provided to consumers, secured by mortgages over real estate and registered in the covered 

1  

Council  Decision  98/415/EC  of  29 June  1998  on  the  consultation  of  the  European  Central  Bank  by  national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 

 
 
 
 
                                                 
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bond  register.  These  mortgage  loans  must  represent  at  least  90%  of  the  total  value  of  the 

cover pool; (ii) substitution assets; (iii) hedging derivatives; and (iv) liquid assets.  

(d) 

It sets out the valuation, composition and structure of the cover pool. A bank that is a covered 

bond  issuer  must  ensure  the  quality  of  the  cover  pool  throughout  the  entire  lifetime  of  the 

covered  bonds  by  monitoring  and  updating  the  valuation  of  the  collateral  assets  and  the 

corresponding  loan-to-value  (LTV)  calculations.  The  relevant  covered  bonds  programme 

administrator must confirm whether pool assets meet specified eligibility criteria. For a single 

loan  secured  by  a  mortgage,  the  LTV  ratio  may  not  be  higher  than  80%  at  the  time  of 

registration in the covered bonds register. If the LTV ratio exceeds 80% due to a decrease in 

the value of the property securing that loan, the loan may remain in the cover pool, as long as 

only  up  to  80%  of  the  value  of  the  property  is  taken  into  account  in  the  calculation  of  the 

coverage  requirement.  In  the  event  that  the  property  value  falls  to  a  level  below  the 

outstanding amount of the  loan, the bank is required  to remove the corresponding mortgage 

loan from the covered bonds register.  

(e) 

It  establishes  the  covered  bonds  register.  Under  this  provision,  the  bank  that  is  a  covered 

bond  issuer  registers  the  cover  pool,  the  issued  covered  bonds  and  the  bank’s  liabilities 

relating  to  the  covered  bonds  issued.  The  bank  also  has  an  obligation  to  keep  separate 

bookkeeping records on covered bonds and assets in the cover pool. 

(f) 

It  sets  out  the  rules  regarding  the  issuance  and  supervision  of  covered  bonds,  including  the 

powers of covered bond programme administrators. 

(g) 

It defines covered bondholders’ rights. 

(h) 

It stipulates special provisions in the event of an issuer’s insolvency or bankruptcy.  

(i) 

It defines transparency requirements. 

1.3  The draft law protects covered bondholder’s rights, granting them a priority security right over the 

assets forming the cover pool. These rights ensure that their claims against a bank issuing covered 

bonds  can  be  preferentially  secured,  with  a  view  to  ensuring  adequate  and  timely  service  of 
covered bondholders in the event of an issuer’s insolvency2. The draft law also sets up a procedure 

to  prolong  the  maturity  of  liabilities  under  covered  bonds  in  certain  circumstances.  This  includes 

when  an  authorised  person  in  the  interests  of  the  bank,  covered  bondholders  and  mortgage 

lenders  intends  to  transfer  the  covered  bond  programme  to  another  bank  or  banks  due  to 

insolvency, forced administration, resolution or bankruptcy proceedings. The procedure is valid for 

one year from the date the authorised person notifies NBS of that intention. The prior approval of 

NBS is required to transfer a covered bond programme to another credit institution. Moreover, the 

draft  law  regulates  the  procedure  on  the  insolvency  of  a  credit  institution  for  dealing  with  the 

separate estates of the secured creditors that are holders of covered bonds. 

2  

The draft  law  amends,  in  this  respect,  the  Law  on  bankruptcy  and  the  Law  on  resolution.  See  Law  No  7/2005  on 
bankruptcy  and  restructuring,  as  amended,  and  Law  No  371/2014  on  the  addressing  of  crisis  situations  in  the 
financial market, as amended. 

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1.4 

The draft law seeks to ensure the provision of credit data required for the purposes of Regulation 
(EU)  2016/867  of  the  European  Central  Bank  (ECB/2016/13)3.  In  anticipation  of  the  obligations 

under  Regulation  (EU)  2016/867,  the  draft  law  extends  the  range  of  specific  counterparties  in 

respect  of  which  data  will  be  provided  to  the  existing  Bank  Loan  and  Guarantee  Register 

maintained  by NBS. The  draft law  also allows for  the exchange  of  information between NBS and 

the ECB on the basis of a written agreement. As a result of this exchange, the ECB will be entitled 

to use data on loans granted to business entities, data on collateral and liabilities related to these 

loans and other data on counterparties under Regulation (EU) 2016/867. 

1.5  The  draft  law  empowers  NBS  to  introduce  a  debt-to-income  (DTI)  limitation  based  on  the  ratio 

between  a  borrower’s  overall  indebtedness  in  respect  of  mortgage  and  consumer  loans  and  the 

borrower’s income. Information on income needs to be demonstrably verified by means of internal 

or external sources that are independent of the borrower. The draft law sets out the legal basis for 

designing  the  DTI  as  a  new  tool  that  extends  the  current  macroprudential  toolkit  in  Slovakia  and 

forms an integral part of assessing the creditworthiness of consumers who are mortgage borrowers 

or credit debtors. This tool is intended to apply in the case of loans provided by banks, branches of 

foreign banks and other creditors. 

1.6  The draft law introduces a number of reforms relating to consumer credit or mortgage loans. These 

provide, inter alia, that, in the event of unexpected financial difficulties on the part of a consumer, 

banks or creditors may extend the maturity of the loan up to a maximum of six months, and oblige 

creditors to verify information on a consumer’s current income using external sources. 

1.7  The  draft  law  amends  the  relevant  provisions  of  the  Law  on  supervision4,  mainly  concerning 

proceedings before NBS and its supervision over the financial market. The draft law also aims to 

ensure  that  the  annual  contributions  by  supervised  entities  are  set  more  fairly,  with  a  more 

reasonable distribution of the associated financial burden among the relevant supervised entities in 

the financial market.  

1.8  The  draft  law  provides  that  the  Law  on  supervision  will  also  apply  mutatis  mutandis  to  NBS 

procedures  in  the  provision  of  cooperation  and  preparation  of  materials  to  assist  the  ECB  in  the 
exercise  of  its  tasks  and  decision-making  under  the  Single  Supervisory  Mechanism  (SSM)5.  As 

noted  in the  explanatory  memorandum accompanying the  draft law, current  procedural  practices, 

where  the  competent  supervisory  authority  is  the  ECB  in  accordance  with  Regulation  (EU)  No 

1024/2013,  in  conjunction  with  Regulation  (EU)  No  468/2014,  demonstrate  a  need  for 

proportionality  in  the  application  of  the  provisions  governing  supervisory  action,  where  NBS 

assesses the application and draws up a draft decision for the ECB. The draft law further provides 

3  

4  
5  

Regulation  (EU)  2016/867  of  the  European  Central  Bank  of  18  May  2016  on  the  collection  of  granular  credit  and 
credit risk data (ECB/2016/13) (OJ L 144, 1.6.2016, p. 44). 
Law No 747/2004 Coll. on financial market supervision. 
See Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central 
Bank concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63), in 
conjunction  with  Regulation  (EU)  No  468/2014  of  the  European  Central  Bank  of  16  April  2014  establishing  the 
framework  for  cooperation  within  the  Single  Supervisory  Mechanism  between  the  European  Central  Bank  and 
national competent authorities and with national designated authorities (SSM Framework Regulation) (ECB/2014/17) 
(OJ L 141, 14.5.2014, p. 1). 

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that  if  cooperation  is  required  for  a  decision  under  the  SSM,  NBS  must  take  its  decision  no  later 

than 18 months after the request, unless a different time limit for the decision is provided for in a 

separate regulation.  

1.9  Finally, the draft law makes provision in Slovak law for the future powers of intervention that NBS 

will acquire from 1 January 2018 under Regulation (EU) No 1286/2014 of the European Parliament 
and of the Council6 and from 3 January 2018 under Regulation (EU) No 600/2014 of the European 
Parliament and of the Council7.  

2. 

Preliminary comment 

This opinion focuses on the provisions of the draft law relating to (a) the tasks of NBS; (b) the new 

legal  framework  for  covered  bonds;  (c)  the  reporting  of  credit  data  by  way  of  implementation  of 

Regulation  (EU)  2016/867;  (d)  the  use  of  DTI  for  financial  stability  purposes,  enlarging  the 

macroprudential toolkit in Slovakia; and (e) NBS procedural rules, including in the context of SSM 

common procedures. 

3. 

Tasks of NBS 

3.1  The  provisions  of  the  draft  law  relating  to  the  new  powers  of  NBS  do  not  extend  the  current 

supervisory and macroprudential mandate of NBS. It is already the national authority competent for 
financial market supervision8, as well as the macroprudential authority in Slovakia9. NBS also has 

the supervisory and macroprudential powers necessary to fulfil these functions.  

3.2  From the perspective of the tasks to be carried out by NBS, the powers related to the authorisation 

and supervision of the issuance of covered bonds are not intrinsically distinct from NBS’s existing 

powers  with  respect  to  the  authorisation  of  mortgage  transactions,  including  the  issuance  of 
mortgage  bonds10.  Similarly,  the  product  intervention  powers  mirroring  those  introduced  under 

Union  regulations  in  the  field  of  financial  instruments  are  akin  to  supervisory  powers  that  NBS 
already  exercises  over  the  activities  of  financial  market  participants11.  Further,  the  power  to 

introduce  a  DTI  limitation  for  financial  stability  purposes  is  not  fundamentally  distinct  from  the 

power of NBS to introduce other macroprudential tools.  

3.3 

It  follows  that  the  draft  law  does  not  confer  genuinely  new  tasks  on  NBS,  but  rather  specifies 

certain  new  powers  that  NBS  may  use  when  carrying  out  the  same  category  of  tasks  already 

6 

7  

8  
9  

10  

11  

See  Article  17  of  Regulation  (EU)  No  1286/2014  of  the  European  Parliament  and  of  the  Council  of  26  November 
2014  on  key  information  documents  for  packaged  retail  and  insurance-based  investment  products  (PRIIPs)  (OJ 
L 352, 9.12.2014, p. 1). 
See Article 42 of Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on 
markets in financial instruments and amending Regulation (EU) No 648/2012 (OJ L 173, 12.6.2014, p. 84). 
See Article 1 of the Law on supervision. 
See  Article  1  of  the  Law  on  supervision,  in  conjunction  with  Regulation  (EU)  No  1092/2010  of  the  European 
Parliament and of the Council of 24 November 2010 on European Union macro-prudential oversight of the financial 
system and establishing a European Systemic Risk Board (OJ L 331, 15.12.2010, p. 1). 
See Article 6 of Law No 483/2001 Coll. on banks, in conjunction with Article 1 of the Law on supervision. 

See Article 135 of Law No 566/2001 Coll. on securities and investment services, in conjunction with Article 1 of the 
Law on supervision. 

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discharged by NBS under its supervisory  and macroprudential  responsibilities. Consequently,  the 

issue of assessing whether the conferral of new tasks on a national central bank complies with the 

prohibition of monetary financing does not arise in the case at hand. 

4. 

Covered bonds law reform 

4.1  The ECB welcomes the draft law’s introduction of a new legal regime for covered bonds, taking into 
account  the  best  practices  identified  by  the  European  Banking  Authority  (EBA)12,  which  aims  to 

modernise existing Slovak regulations, contribute to the development of the Slovak capital market 

and  improve  the  level  of  protection  and  legal  certainty  for  investors.  In  particular,  the  ECB 

welcomes  the  draft  law’s  objective  to  ensure  that  covered  bonds  issued  under  the  draft  law  are 

financial instruments of good quality and that they provide a suitable and effective source of long-

term funding, supporting banks’ business models and overall stability.  

4.2  The European Commission has announced that it will put forward a legislative proposal for a Union 

framework  on  covered  bonds  to  help  banks  finance  their  lending  activity  scheduled  for  the  first 
quarter  of  201813.  The  ECB  favours  a  high-quality  and  transparent  covered  bond  market  in  the 

Union, and sees potential for harmonising certain standards and practices. 

4.3  The  draft  law  also  introduces  a  disclosure  obligation  for  banks  with  respect  to  covered  bond 

programmes,  which  seeks  to  ensure  that  banks  inform  the  public  about  the  issuance  of  covered 

bonds in a transparent manner. This disclosure obligation is one of the requirements that a covered 

bond  must  meet  in  order  to  be  considered,  in  portfolios  of  banks  that  have  purchased  covered 

bonds, an exposure with a preferential risk weight in line with Article 129(6) of Regulation (EU) No 
575/2013  of  the  European  Parliament  and  of  the  Council14.  In  particular,  the  ECB  welcomes  the 

fact  that  under  the  draft  law  documents  related  to  the  covered  bond  programme  must  be  made 

available  as  part  of  the  disclosure  obligation,  although  it  would  be  helpful  to  specify  which 

transaction  documents  must  be  disclosed.  The  transparency  requirements  of  Article  129(7)  of 

Regulation  (EU)  No  575/2013  are  minimum  requirements  and  national  legislative  bodies  are 

encouraged to ensure that the disclosure obligation is in line with  best market practices, allowing 

adequate due diligence to be performed.  

4.4  The ECB welcomes the draft law’s proposed introduction of a requirement for  a liquidity buffer to 

address liquidity risk. The ECB agrees that this liquidity buffer should be segregated as part of the 

cover pool assets and understands that these liquid assets may be counted towards the fulfilment 

of the liquidity coverage ratio. However, it does not appear prudent to apply a coefficient of only 0.4 

to  negative  cash  flows  related  to  principal  payments  occurring  within  31-180  days.  The  Slovak 

12   

13  

14  

See  the  EBA  Report  on  Covered  Bonds:  Recommendations  on  harmonisation  of  covered  bond  frameworks  in the 
EU of 20 December 2016 (EBA-Op-2016-23), available on the EBA’s website at www.eba.europa.eu. 

See the European Commission’s Initiative on an integrated covered bond framework (Inception Impact Assessment) 
of 9 June 2017, available on the Commission’s website at www.ec.europa.eu. 

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  and  amending  Regulation  (EU)  No  648/2012  (OJ  L  176, 
27.6.2013, p. 1). 

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authorities  are  encouraged  to  ensure  that  those  cash  flows  are  taken  fully  into  account  for  the 

purposes of calculating such liquidity requirements. 

4.5  The draft law proposes that the maturity date of covered bonds can be extended by a maximum of 

12 months only if: (a) forced administration is imposed on the bank that issues the covered bonds; 

(b)  a  resolution  procedure  has  been  initiated  and  conducted;  or  (c)  the  bank  has  been  declared 

bankrupt. 

4.6  The ECB welcomes the fact that the draft law does not set an upper limit for the coverage indicator, 

i.e. the value of the cover pool over the value of the outstanding liabilities. The draft law specifies 

that a bank that is an issuer of covered bonds must maintain the mandatory coverage indicator at 

105%  or  such  higher  coverage  indicator  as  is  specified  in  the  individual  issue  conditions  for  the 

covered bonds. Since, in practice, it may be difficult to maintain the coverage indicator precisely at 

105%,  the  draft  law  could  be  reworded  to  require  the  issuer  to  maintain  a  mandatory  coverage 

indicator of at least 105%. The ECB welcomes the possibility for a bank that is an issuer of covered 

bonds  to  maintain  a  higher  coverage  indicator  in  the  individual  issue  conditions  for  the  covered 

bonds,  which,  according  to  the  draft  law,  needs  to  be  maintained  until  the  respective  bond  has 

been redeemed in full. 

5. 

Provisions supporting reporting of credit data under Regulation (EU) 2016/867 

5.1  The draft law seeks to ensure the provision of credit data required for the purposes of Regulation 

(EU) 2016/867. The ECB welcomes the fact that the draft law enables NBS, as the sole operator of 

the  information  exchange  system,  to  make  special  agreements  with  regard  to  linking  the 

information exchange system with comparable databases established in other Member States. 

5.2  The ECB welcomes the fact that the draft law extends the range of counterparties and enables the 

system  of  electronic  exchange  of  information  between  NBS  and  the  ECB  to  be  developed, 

facilitating credit risk assessment, thereby enhancing risk management capabilities. These new or 

improved  statistics  to  be  produced  in  the  long  term  are  necessary  for  the  performance  of 

Eurosystem 

tasks, 

including  monetary  policy  analysis,  monetary  policy  operations,  risk 

management, financial stability surveillance and research, as well as the Eurosystem’s contribution 

to  the  smooth  conduct  of  policies  pursued  by  the  competent  authorities  relating  to  the  prudential 

supervision  of  credit  institutions  and  the  stability  of  the  financial  system.  These  data  will  also  be 
useful for banking supervision purposes in the context of the SSM15. 

5.3  The draft law provides for NBS to collect credit data without any threshold at national level. Where 
the  data  meets  the  reporting  threshold  in  Article  5(1)  of  Regulation  (EU)  2016/86716,  it  will  be 

reported to the ECB in accordance with that Regulation. 

15  

16  

See  paragraph  3.2.5.2  of  Opinion  CON/2016/42.  All  ECB  opinions  are  published  on  the  ECB’s  website  at 
www.ecb.europa.eu. 

The reporting threshold under Article 5(1) of Regulation (EU) 2016/867 means that credit data must be reported for 
instruments  specified  in  Article  4  thereof  where  the  debtor’s  commitment  amount  is  equal  to  or  larger  than  EUR 
25 000 on any reporting reference date within the reference period.  

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6. 

Macroprudential  aspects  of  NBS  setting  the  limit  on  the  DTI  ratio  for  consumer  credit  and 

mortgage loans 

6.1  Household indebtedness has doubled in Slovakia since 201017. The ECB would like to emphasise 

its  stance  on  implementing  macroprudential  tools  to  foster  a  sound  amortisation  culture  and  to 
counteract  excessive  household  indebtedness  and  financial  imbalances18.  Therefore,  from  a 

financial  stability  perspective,  the  ECB  welcomes  the  fact  that  the  draft  law  establishes  a  legal 

basis  to  limit  the  ratio  of  overall  indebtedness  to  a  borrower’s  income  for  mortgage  loans  and 

consumer credit.  

6.2  The draft law empowers NBS to issue secondary legislation in the form of decrees, which can be 

used  to  set  out  this  macroprudential  instrument  in  more  detail.  The  ECB  expects  NBS  to  consult 
the ECB in accordance with Article 127(4) of the Treaty on any such decrees related to the DTI19. 

7. 

Procedural rules at NBS, including in the context of SSM common procedures 

7.1  Under  the  draft  law,  the  detailed  provisions  of  Slovak  law  relating  to  proceedings  in  supervisory 

matters will apply mutatis mutandis to NBS procedures effected under the common procedures for 

cooperation  with  regard  to  an  application  for  an  authorisation  to  take  up  the  business  of  a  credit 

institution,  the  withdrawal  of  an  authorisation  and  the  acquisition  of  qualifying  holdings  under 
Regulation (EU) No 468/201420.  

7.2  These  changes  should  optimise  these  proceedings  and  increase  legal  certainty  for  all  parties 

concerned.  These  changes  do  not  seek  to  interfere  in  any  way  with  ECB  decision  making 

processes within the framework of the SSM. 

This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 8 September 2017. 

[signed] 

The President of the ECB 

Mario DRAGHI 

17  

18  
19  
20  

See  the  explanatory  memorandum  to  the  draft  law  detailing  amendments  to  Law  No  129/2010  Coll.  on  consumer 
credits and other credits and loans for consumers and Law No 90/2016 Coll. on housing loans. 
See paragraph 2.1 of Opinion CON/2016/18 and paragraph 2.1 of Opinion CON/2017/14. 

See paragraphs 2.3 and 2.4 of Opinion CON/2017/11. 
The common procedures are set out in Articles 73 to 88 of Regulation (EU) No 468/2014. 

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