HSBC Eyes New Covered Bond Program in Uruguay Mortgage Push

(Bloomberg) -- The Uruguayan subsidiary of HSBC may seek regulatory approval as soon as next year for a second covered bond program of about $100 million as the bank aims to take 15 percent of the home loan market in two years, according to senior executives.

“I wouldn’t rule out pitching a new program to the central bank if the origination of mortgages continues according to our forecasts and if pension funds and insurance companies still have room” within their portfolio limits, Enrique Goyetche, head of global markets at the local unit, said in an interview.

HSBC is the only local lender that is funding a portion of its home loan business through a type of covered bond, known locally as notas de credito hipotecarias. Bondholders receive payments directly from the bank with a pool of on-balance sheet mortgages serving as collateral in case the issuer fails.

Since 2015, HSBC has sold the equivalent of $75 million in 15-year covered bonds denominated in CPI-linked UI units, and Goyetche expects to complete the current program with a $25 million issuance next year. The bonds provide stable, long-term funding in the same currency as the bank’s UI-denominated mortgages, he said.

Eager Buyers

With assets under management of 492 billion pesos ($16.4 billion), Uruguay’s four pension funds have been eager buyers of private sector securities in a financial market flooded with government paper.

“Outside of government securities and some financial trust issuances there aren’t any medium to long-term securities,” Goyetche said.

Before issuing more covered bonds, HSBC has to build up its mortgage portfolio. Alberto Mello, deputy CEO and head of retail banking, aims to grow the bank’s mortgage portfolio to $200 million in 2020 from about $120 million today.

HSBC, a mid-sized player in the local banking industry, has long been the subject of merger and acquisition speculation after a deal to sell the bank to Colombia’s Banco GNB Sudameris SA fell through in 2014.

“We are here to stay,” Mello said at the bank’s headquarters in Montevideo’s historic old city. “The mortgage business is a sign that we want to stay for a long time.”

To contact the reporter on this story: Ken Parks in Montevideo at kparks8@bloomberg.net

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Nikolaj Gammeltoft, Andres R. Martinez

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