EBRD launches €385 million Slovak Covered Bond Framework

By Axel  Reiserer

EBRD adopts new strategy for Slovak Republic

  • €385 Covered Bond Framework for Slovak Republic launched
  • Development of local capital market with a secure and low-risk instrument
  • EBRD also supported development of adequate legislation

The Slovak capital market will receive a major boost with the launch of a €385 million Covered Bond Framework by the EBRD. The EBRD’s presence as a significant covered bond investor serves as an endorsement of this asset class and contributes to a diversification of Slovak capital market products.

The framework will allow the Bank to invest in covered bonds issued by local banks in the next three years and  scale-up its support for the development of the local capital market with the establishment of a secure and low risk-instrument.

The EBRD worked very closely with the Slovak authorities on the development of new regulations for covered bonds that came into force on 1 January 2018 and which follow EU standards and recommendations from the European Banking Authority.

The new framework aims to help mobilise some €1.6 billion of private sector investments into covered bonds issued by Slovak banks.

The EBRD will also introduce a green economy component into its investments, with local partner banks committing to support projects financing energy efficicent, renewables or environmental improvements.

A covered bond is a debt security issued by banks that is backed by a portfolio of mortgages. The instrument can provide long-term funding and, by offering stable returns, attract investors. While covered bonds are well-established in mature markets, many countries where the EBRD invests are still in the process of introducing the instrument.

The new framework builds on the success of a first covered bonds programme launched by the EBRD in 2017 with a volume of up to €200 million. Under the original framework, the EBRD invested into 5 issuances by Slovak banks. Strong market demand and the significant impact of the first facility have now led to the introduction of a second framework.

Lucyna Stańczak-Wuczyńska, EBRD Director for EU Banks in the Financial Institutions Group, said: „This is a large framework and it represents a big step in the development of the Slovak capital market. It demonstrates what the EBRD can offer as a partner as investor as well as in policy engagement. The deepening of the local capital market will benefit local enterprises and we are especially proud of the green commitment included in this programme.“

To date, the EBRD has invested more than €2.4 billion through almost 140 projects in the Slovak Republic. Deepening financial intermediation for the benefit of the real economy is one of the Bank’s priorities in the country.