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Covered bonds in Central and Eastern Europe

By EBRD  Press Office

Pierre Heilbronn's speech to Covered Bonds in Croatia event

Delivered by: 

Pierre Heilbronn, EBRD Vice President Policy and Partnerships


Croatian National Bank


New EU covered bonds framework - what is in it for Croatia?


Good morning

Dear Governor, thank you for welcoming us all so warmly at the premises of the Croatian National Bank. It is a real pleasure to be here in Zagreb.

On behalf of the EBRD, let me first thank you all for taking the time out of your busy schedules to join us here, today, and discuss a topic that is core to EBRD policy and investment: covered bonds.

The event could not be timelier – the EU is finalising the Capital Market Union agenda at full speed, with covered bonds being one of its main pillars.  Great discussion has already been sparked on the topic following the finalisation of the European Commission’s proposal for the new Covered Bond Directive. The Commission building upon the previous excellent work of the European Banking Authority (EBA) on best principles and responding to the market demand for harmonization, published its proposal for the directive in March 2018. Following this and within a few months only, the developments are rapid. Thereby, as it has been advertised with the event, there is one big question to be answered “Are the Member-States ready for its implementation?”.

This is not a simple question to answer and I am positive that today’s event will contribute effectively to a fruitful discussion on covered bonds.

But before getting into the core of the event, I would like to explain why covered bonds and why EBRD is interested in creating covered bonds markets.

Covered Bonds are debt instruments that serve as a long-term funding tool. By allowing banks to fund longer-term assets in a way which is cost effective, more accurately matched to the term of those assets, covered bonds contribute to the stability of the banking system. EBRD is committed to strengthen developing economies across three continents by making them among others resilient. It is evidently a natural match for EBRD to support covered bond legal reforms and investments. It is our perfect “covered bond marriage”.  

There are many countries in the CEE region that have already taken steps or are currently undertaking steps towards updating their covered bond legislation or adopting new laws in the field of covered bonds. Up to date, EBRD’s involvement includes finalising the covered bond laws in Poland, Romania and Slovak Republic, while the work continues in Estonia, Latvia, Lithuania and in …. Croatia. Interestingly enough the Local Currency and Capital Markets Development Team, or LC2, which has led these reforms in EBRD was created here in Zagreb during our Annual Meeting in May 2010. Now the LC2 is one of the key strategic themes, with 40% of all EBRD projects signed this year relating to either capital market products or local currency debt.

Our legal or regulatory reforms remain blank when they do not actively incentivise investors to participate in the market. In the EBRD we are proud that the countries that have undertaken reforms, present excellent market results, as this is proven both by the ratings and market growth. Over the last 2 years we have invested more than 618 million euro in covered bonds in EBRD region: Poland, Slovakia, Hungary, Turkey, Greece are just an example … and the pipeline is not only solid but it is also growing.

One of the recent successes I am personally proud of (and always thank the team for that) is the result of our reform in Slovakia, where Moody’s rating for covered bonds in Slovak Republic is AAA. The bank that issued the first ever AAA bond in an EBRD country of operation (Slovenska Sporitelna) will discuss their experience with you later today.  Whereas, in Poland following the new changes there is an increase in issuance of covered bonds by Polish issuers strengthening the local capital market.  Jakub Niesluchowski and PKO Hipoteczny will tell you all about how to create a vibrant market.

I suspect that you are all thinking, but what about Croatia and covered bonds? The EBRD is supporting Croatia with a Technical Cooperation project to develop and enhance its domestic covered bonds market in collaboration with the Croatian Ministry of Finance, the Croatian National Bank and HANFA. As you are aware, there is no regulation on covered bonds in the country. So it is indeed very interesting to see how the new EU proposed framework shall influence the work being conducted in country and when such work shall be finalised here.

Besides covered bonds, we are also engaged in supporting the Croatian capital market, including cooperating with the Zagreb Stock Exchange working together in the SME Growth Platform; and crowdfunding.

Thank you very much for your attention and if I may, Hvala vam.

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