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EBRD welcomes progress in new funding source – covered bonds – in CEE

Author: Svitlana Pyrkalo

At conference in London, First VP Bennett says EBRD ready to invest in new issues, following recent ones in Poland and Turkey

The European Bank for Reconstruction and Development (EBRD) is ready to invest in new issues of covered bonds in emerging Europe, supporting the development of this important new long-term funding source.

At the first conference dedicated to this asset class, the CEE Covered Bond Forum, organised by Euromoney with EBRD support in London today, the Bank’s First Vice President Phil Bennett welcomed the recent positive developments in his keynote address.

Mr Bennett stressed that the EBRD stands ready to support both the legislative reform which enables covered bonds and to invest in new covered bonds in its region of operations. He said that the development of covered bonds, an established long-term funding tool in western Europe but new and especially important for emerging markets, will contribute to the stability of banking systems. Covered bonds are backed by assets on the issuing banks’ balance sheets and are viewed as low-risk investments.

The EBRD First Vice President stressed that, at times when economies are still recovering from the global financial crisis, the strategic importance of covered bonds as a long-term funding tool has been recognised globally. With EBRD support, he said, new covered bond laws have been recently adopted in Poland and Romania, while Croatia is in the process of drafting the relevant legislation. Turkey also recently adopted new legislation enabling covered bonds.

Following the very recent legislative reform, the EBRD has invested in covered bonds in Poland and Turkey in the last two weeks – PLN 21.5 million issued by Bank Hipoteczny and €50 million in a benchmark issuance by VakifBank, respectively.

Meanwhile, the latest issue of the EBRD’s Law in transition journal, which tracks market economy-oriented legislative reform in the region, has published an extensive article on covered bonds.

Authored by Andreea Moraru, Jacek Kubas and Ivor Istuk, the article “To Bond Or Not To Bond?” provides an overview of covered bonds and legal frameworks that govern them. The new edition of the Law in transition journal, available at www.2016.lit-ebrd.com, will be formally launched on 12 May, during the second day of the EBRD’s Annual Meeting in London.