Baltic, Banks, EU – Baltic States, Financial Services

Taken separately, the markets for mortgage loans that serve as surety for covered bonds are small in each of the Baltic countries, making the issuance and administration of covered bonds more expensive. When issuance of covered bonds can be done in all three countries at once, the procedure will be more favorable for banks and the bonds more attractive for investors," Thomas Auvaart, head of the financial markets policy department at the Estonian Ministry of Finance, said. 

A well functioning legislative framework for covered bonds will take into consideration the specifics of individual countries, while simultaneously harmonizing the legislative framework to a big extent, in order to create in the Baltics a regulation of covered bonds that is as uniform as possible and to facilitate the issuance of covered bonds, spokespeople for the Estonian ministry said.  

Based on the proposals listed in a recently completed report, Estonia, Latvia and Lithuania can change their laws to enable banks to issue covered bonds on the same conditions in all three countries, whereby investors will be ensured the same level of protection across the Baltics. The rest of the proposals are to do with the collateral of covered bonds and its administration, as well as recommendations for ensuring sufficient oversight over the banks issuing covered bonds. 

At present changes to the regulation concerning covered bonds are planned in all three countries. Although the speeds differ, the wish is to have the harmonized environment for the issuance of covered bods in place by the end of 2020. 

A covered bond is a low-risk security that can be issued only by a bank which has obtained an additional activity permit for this. Serving as collateral for the bond is primarily the bank's claims on mortgage borrowers. Also claims on borrowers who have placed commercial real estate as surety against a loan can serve as collateral, just like debt claims on the state or municipalities.