Covered bonds to stimulate Croatia’s capital market

By Axel  Reiserer

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Covered bonds to stimulate Croatia’s capital market

Joint EBRD-HNB conference in Zagreb discussed opportunities for investors in a changing European legislative landscape

Covered bonds are an increasingly important instrument to build local capital markets in countries where the EBRD operates, the Bank’s Vice President, Pierre Heilbronn, said in Zagreb today. 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, Mr Heilbronn, who is heading the Bank’s policy engagement, underlined. While other countries in central Europe have seen significant progress in recent years, Croatia does not yet have specific covered bond legislation.

Mr Heilbronn was speaking at a conference jointly organised by the EBRD and the Croatian National Bank (HNB) to discuss the impact of recent changes in the EU covered bond framework on Croatia. The new directive is one of the pillars of the EU Capital Market Union agenda. As the legal adoption process nears conclusion Mr Heilbronn stressed: “Developments are rapid and there is one big question to be answered: Are the member states ready for its implementation?”

The event was attended by representatives of the Croatian Financial Services Supervisory Agency (HANFA), the government, the banking sector, rating agencies and other practitioners.

HNB Governor Boris Vujčić said in his opening address: “Once adopted, the proposed EU covered bonds directive will bring about fresh opportunities for the Croatian banking sector’s issuers of covered bonds as well as for investors, which opportunities have not been available in Croatia before. The Croatian National Bank and other Croatian regulators shall to the extent necessary support the implementation of the EU covered bonds framework in Croatia including also by passing secondary level legislation within their respective competences and by actively seeking solutions to any remaining regulatory obstacles or uncertainties regarding the covered bond issuances.”

The EBRD is active in the development of covered bonds as part of its efforts to support the development and strengthening of local capital markets in its countries of operations. By allowing banks to fund longer-term assets in a way that is cost-effective and more accurately matched to the term of those assets, covered bonds contribute to the stability of the banking system.

To date, the EBRD has been engaged in supporting the development of covered bond legislation in Poland, Romania and the Slovak Republic, while the work continues in Estonia, Latvia and Lithuania. In Croatia, the Bank is supporting a technical cooperation project to develop and enhance the domestic covered bonds market in collaboration with the Ministry of Finance, HNB and HANFA.

In addition, the EBRD is also active in the covered bonds market as an investor. In the past two years alone the Bank has invested more than €600 million in a variety of issuances in Greece, Hungary, Poland, the Slovak Republic, and Turkey.

The development of local capital markets is one of the EBRD’s priorities to strengthen the resilience of the economies where the Bank invests. The EBRD’s approach combines investment with technical assistance through policy engagement, for instance in the drafting of laws.


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