Czech Covered Bonds - Czechia

1	What type of assets may be included in the cover pool?
	Primary assets Substitution assets Public sector assets Mortgage assets Other 1* Other 2* Other 3*   Exposures to public sector entities x x x Exposures to credit institutions x x x Residential mortgage loans x x x Commercial mortgage loans x x x Senior MBS issued by third parties x x x Ship loans x x Exposures to multilateral development banks x x x Derivatives x x Other eligible assets pursuant to Article 129(1)(a-b) of the CRR x x x Other eligible assets pursuant to Article 129(1)(d-f) of the CRR x x x (other than eligible assets pursuant to Article 129(1)(a-b) and Article 129(1)(d-f) of the CRR) x x Other 1 is "mixed assets". Further comments in the last section at the end of the questions list.
2	What is the geographical scope of assets?
	Primary assets Substitution assets Public sector assets Mortgage assets Other 1* Other 2* Other 3*   Domestic x x x x Multilateral development banks x x EU x x x x EEA x x x x UK x x x CH x x x Australia x x x Canada x x x Japan x x x New Zealand x x x USA x x x OECD x x x G10 x x x
3	Is there a maximum level for substitute assets in the statutory national framework?	Yes, please specifiy Please, see comments section at the end of the questionnaire
4	Are there any reporting requirements for covered bond issuers to investors?	Yes, by law and in line with art. 14 of EU Covered Bond Directive
5	What is the frequency of reporting to investors?	Quarterly The relevant information is provided to investors at least on a quarterly basis (i.e. the issuers may report on a more frequent basis).

1	What is the basis for property valuation	Market value Furthermore, the Czech covered bonds regulation allows property valuation on the basis of regular price (in Czech, cena obvyklá).
2	Is a regular update of the property value required?	No
3	What are the LTV limits (single asset based)? Please specify in %/n.a.	Residential Commercial Agricultural All:100%.Specific coll value applies to eligible assets pursuant Art129(1)-(2) CRR as cover assets.Lower limit set in conditions of CBs contractually.
4	Are loans in excess of LTV limits eligible for inclusion in the cover pool?	Yes (soft limit)

IV.1 Derivative contracts in the cover pool

1	Are derivative contracts eligible for the inclusion in the cover pool?	Yes, exclusively for hedging purposes (by law)
2	Are there requirements for derivative contracts (e.g. eligibility criteria for hedging counterparties)?	Yes, specified in law
3	Will derivative contracts remain in case of insolvency of the issuer?	Yes
4	If derivatives are permitted in the cover pool, what is their ranking?	Pari passu to covered bond holders

IV.2 Exposure to market risk

1	What is the primary method for the mitigation of market risk?	'Natural' matching (i.e. match funding, matching without the use of off-balance sheet instruments) and stress testing is ordinarily used as well.
2	Are there mitigating provisions for interest rate risk?	No
3	Are there mitigating provisions for foreign exchange risk?	No
4	Are there mitigating provisions for maturity mismatch risk?	No
5	What type of coverage test is applied?
6	Are there stress scenarios applied?	No

IV.3 Liquidity risk

1	Is exposure to liquidity risk mitigated?	No
2	What liquidity risk mitigation requirements are in place (principal)?	180 days liquidity provisions Other, please specify optional maturity extension provisions
3	What liquidity risk mitigation requirements are in place (interest)?	180 days liquidity provisions
4	What is the consequence of not fixing a breach of liquidity risk mitigants?	No new covered bond issuance Administrative penalty The breach may serve a trigger for extended maturity structure. Contractually, the breach may also be an event of default.
5	If 180 days liquidity provisions are in place, what types of liquid assets are eligible	LCR Level 1 LCR Level 2a LCR Level 2b Short term exposures to credit institutions (Credit Quality Step (CQS) 1) Short term exposures to credit institutions (CQS 2) Short term deposits to credit institutions (CQS 1) Short term deposits to credit institutions (CQS 2) Short term deposits to credit institutions (CQS 3)
6	If 180 days liquidity provisions are in place, the calculation of principal is based on:	The expected maturity date No clear point. From the interpratetive materials, it seems that the Czech Rep did not use a discretion in Article 16(5) of the CBD.

IV.4. Maturity extension

1	Is maturity extension allowed by national law?	Yes, but optional and subject to conditions
2	Is it possible to issue…	Hard bullet Soft bullet
3	Which trigger plays a role for maturity extension according to law - independent or alone or in combination?	Issuer bankruptcy/resolution Lack of liquidity; breach of liquidity rules Issuer failure to pay Please, see comments section at the end of the questionnaire
4	Does any competent authority need to give its okay (or non-opposition)?	No

IV.5 Overcollateralisation

1

Is mandatory overcollateralisation required in the law ?

Public Covered Bonds where the Statutory 85% Limit is met using predominantly public receivables - 110% - nominal Other types of Covered Bonds recognized under Czech covered bonds regulation - 102% - nominal

V.1 Cover pool monitor (CPM)

1	Is there a cover pool monitor in addition to national competent authorities in the statutory law?	No Please, see comments section at the end of the questionnaire
2	Is the CPM separate from the issuing credit institution?
3	Is the appointment, dismissal, eligibility criteria and the role of the CPM regulated by the national statutory law?	No

V.2 Banking supervision

1	Which are the national competent authorities designated to carry out covered bonds public supervision in the law?	Czech National Bank - Website List of compliant EU Covered Bonds/EU Covered Bonds Premium has not yet established in the Czech Republic.
2	Is a special permission required for a covered bond programme according to national law?	Others, please specify Permission for covered block
3	Is there a covered bond issuance limit in law or regulation? If yes, please specify	No
4	Does the national statutory law provide for the appointment of a dedicated cover pool administrator in case of insolvency/resolution (transfer included acc. to BRRD [Bank Recovery and Resolution Directive])?	Yes
5	Which is the typical frequency in the national statutory law of reporting from the covered bond issuers to the designated competent authorities?	Quarterly

1	Does the national statutory law meet the requirements laid down in the EU Covered Bond Directive?	Yes
2	Does the statutory law meet the requirements of Article 129 of CRR [Capital Requirement Regulation]? In this case, please specify the collateral types meeting the Art. 129 CRR.	Yes Rules allow assets set out in Articles129(1)-(2)CRR to be used as a cover assets if the issuer meets conditions set out in Articles 129(1a)-(3)CRR.
3	Does the statutory law allow covered bonds out of the scope of Art 129 of CRR? In this case, please specify the collateral	Yes Please see answer to question above.
4	Are listed covered bonds eligible in repo transactions with the national central bank?	Yes

Primary Legislation

• Czech Act No. 182-2006 Coll., on Bankruptcy and Methods of its Resolution, as amended (most importantly Section 375) (CZ).pdf (Original language)
• Czech Act No. 190-2004 Coll, on Bonds, as amended (CZ).pdf (Original language)
• Decree of the Czech National Bank No. 2-2019 Coll., on Records of Covered Blocks, as amended (CZ).pdf (Original language)

European Covered Bond Label (Premium) list

• https://www.cnb.cz/en/supervision-financial-market/lists-registers/other-lists/ (English language)

Hypostat

• Czechia.pdf (English language)

Fact Book

• 3.11 Czechia.pdf (English language)

Any further comments/information?

Section II.1: "The Czech covered bonds regulation recognise three types of covered bonds (kryté dluhopisy): (i) mortgage covered bonds (hypoteční zástavní listy); (ii) public covered bonds (veřejnoprávní zástavní listy); and (iii) mixed covered bonds (smíšené zástavní listy). The distinction between these three types of covered bonds depends on what cover assets must prevail in the cover pool that serves as a cover in respect of those covered bonds and by virtue of which cover assets the applicable Statutory 85% Limit (stipulating that particular eligible assets must constitute such cover that the aggregate value of certain cover assets in the cover pool must be equal to at least 85% of the aggregate value of all debts for whose cover the cover pool serves) must be complied with." Section II.3: "Note that Czech covered bonds regulation does not formally distinguish between primary and substitute assets. However, depending on the type of covered bond (i.e. public covered bond, mortgage covered bond) eligible assets must constitute such cover that the aggregate value of certain cover assets in the cover pool must be equal to at least 85% of the aggregate value of all debts for whose cover the cover pool serves. This distinction between primary and substitute assets is not relevant in relation to mixed covered bonds." Section IV.4.3: "The Czech covered bonds regulation allows the issuers to issue covered bonds with a feature of extending their scheduled maturity for a pre-determined period of time if a specific trigger event specified in the terms and conditions of a series of covered bonds occurs. Note that only the events recognised under the Czech Act on Bonds may be used as trigger events for the purposes of an extendable maturity structure feature." Section V.1.1: "The Czech covered bonds regulation do not require the issuers of covered bonds to appoint mandatory asset (or cover pool) monitor within the meaning of Article 13 of the CBD. However, the issuers are free to appoint asset (or cover pool) monitor which, however, does not have to follow the requirements placed on 'obligatory' cover pool monitors under Article 13 of the CBD."