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Georgia working on covered bond law

Georgia flag 230 x 150
By Bill Thornhill
15 Jul 2021

Georgia has become the latest country to signal its intention to develop a covered bond law, though given the small size of its mortgage market, issuance prospects are likely to prove limited.

The National Bank of Georgia recently held an online presentation, setting out its ambition to formulate a covered bond law.

Following the keynote speech by the National Bank of Georgia’s (NBG) vice-governor, Archil Mestvirishvili, presentations were made by representatives of the European Bank for Reconstruction and Development and the International Financial Corporation.

Other speakers included the representatives of the NBG's securities market and banking supervision.

“The purpose of the draft law is to increase commercial bank access to diversified sources of funding and to help the development of covered bond market in Georgia,” said the NBG in a statement published on Tuesday.

The EBRD has provided vital assistance in helping develop legal frameworks across eastern Europe and, as a consequence, benchmark euro supply has emerged most recently from Estonia, which followed Slovakia and Poland.

With the EBRD’s help Latvia recently enacted its law and should soon be poised to follow up with issuance. A Lithuanian law is expected to emerge before long. 

But, with Georgia’s real estate market valued at roughly €7bn, it’s highly unlikely that benchmark supply will emerge.

According to the presentation the prospective law will cap issuance at 4% of an issuer’s total assets.

Residential mortgage loans with a loan to value ratio of up to 80% will be eligible for the cover pool, whilst commercial loan LTVs will be limited to no more than 60%.

The cover pool can also hold eligible liquid assets, as well as derivatives.

Asset and liabilities will need to be in the same currency suggesting deals will initially only be available in Georgian lari. This would imply that scope for international placement may be limited.

Overcollateralisation will be set at a minimum of 2% and banks will need to include a liquidity reserve that holds payments for the next 180 days.

The risk exposure will be in line with the Capital Requirement Regulation. Based on an expected rating in the range of BB+ to BB-, the covered bonds would carry a risk weighting of 50%.

By Bill Thornhill
15 Jul 2021