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EBRD rolls out covered bonds framework in Slovakia

By Axel  Reiserer

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EBRD rolls out covered bonds framework in Slovakia

€49 million investment in VUB covered bonds as first project of new facility.

The European Bank for Reconstruction and Development (EBRD) is rolling out a €200 million framework for mortgage covered bonds in the Slovak Republic with the aim of strengthening the development of the local capital market. The EBRD has also partnered with the Slovak Ministry of Finance to improve the existing legal and regulatory framework for covered bonds.

In the first project under the programme, the EBRD has invested €49 million in a series of 7-year mortgage covered bonds issued by the Všeobecná úverová banka (VUB), the second largest universal bank in the Slovak Republic by total assets. The face value of the issuance was €250 million, the largest so far on the Slovak market.

Developing local capital markets is one of the EBRD’s priorities in its work to strengthen the resilience of the economies of the country where the Bank invests. Resilience is one of the six transition qualities defining the EBRD’s work. The Bank believes that a well-functioning market economy should be more than just competitive; it should also be inclusive, well-governed, environmentally friendly, resilient and integrated.

Covered bonds are a long-term funding tool backed by assets on the issuing banks’ balance sheets like mortgages. They are viewed as low-risk investments and are a well-established instrument in western markets. The EBRD is ready to support the legislative reform which enables issuance of covered bonds in line with the best market standards and to invest in new covered bonds in the regions where it invests as this instrument can make an important contribution to the stability of banking systems.

Before launching the Slovak Covered Bonds framework, the EBRD had invested in similar funding tools in Poland and Turkey. The Bank also engaged, under the Local Currency and Capital Market Initiative, in reform work in a number of countries including Croatia, Lithuania, Poland and Romania. The Bank has just started a project with the Slovak Ministry of Finance to enhance the existing covered bonds’ legislative framework in the Slovak Republic. The new draft law is expected soon.

“Until recently, covered bonds were hardly known or used in the EBRD’s countries of operations,” said André Küüsvek, EBRD Director for Local Currency and Capital Market Development. “The EBRD supports the development of covered bonds as they combine safe long-term funding for banks with a great transition story. Behind every covered bond, there are hundreds of mortgage loans, and behind every mortgage loan there is a household and a family.” 

Lucyna Stanczak-Wuczynska, EBRD Director of Financial Instituations and EU Banks, said: “We are very proud to launch this innovative and important programme today. It underlines the contribution the EBRD can still make in an advanced economy like the Slovak Republic. Strengthening the capital market will benefit the Slovak banking sector by contributing to its resiliency and will ultimately facilitate sustainable financial intermediation in the country.”

Alexander Resch, CEO of VUB, added: “I am very happy that the EBRD have chosen VUB for its first investment into covered bonds issued by a Slovak bank. The funding will help the bank to grow its mortgage book further and at the same time strengthen its funding structure.”

Since the beginning of its operations in the Slovak Republic, the EBRD has invested over €2.2 billion in some 130 projects in the country.

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