Irish mortgage lenders are considering issuing covered bonds for the first time. The Bank of Ireland (BOI) will determine whether it will follow the covered bond route as a funding option in the next few months, according to a bank insider. AIB Bank and Irish Life & Permanent are also considering covered bonds, according to bankers in Dublin. Duncan Farquar, an official in AIB's treasury department, and Peter McCabe, head of financial institutions at Irish Life's treasury department, did not return calls by press time.
The BOI insider says that Irish banks are looking at covered bonds secured by portfolios of mortgages now because these instruments in theory should be cheaper to issue than medium-term notes and residential mortgage-backed securitizations. BOI is weighing up the costs versus benefits of initiating a covered bond program and determining which mortgage assets would be eligible to be used as collateral. BOI has an E30 billion residential mortgage book, E20 billion of which are mortgages originated in the U.K. through its subsidiary Bristol & West.
The only covered bonds issued in Ireland to date have been brought out by German banks and were secured on portfolios of public sector loans. Those deals were issued by WestLB Covered Bond Bank and Depfa Bank.