For Strengthening the Economy — A Joint Financial Instrument of the Baltic States

A unified regulatory framework for covered bonds in the Baltic states is at an advanced stage of development which will offer more opportunities to attract investment. The European Bank for Reconstruction and Development (EBRD) with consultants presented the final report on the development of the Pan-Baltic Covered Bond Framework.

On the basis of the Bank’s recommendations, the Baltic states will have to adjust, accordingly, their national legislation regulating the covered bonds. The unanimous harmonization of laws will create an attractive new instrument for foreign investors – where to issue the covered bonds, the banks could use assets from all three states as underlying assets.

“This initiative is only one of the instruments to link the advantages of the Baltic states to overcome the challenges often faced by small countries. A unified legal regulation and the introduction of new financial instruments will create conditions for new international investors to enter the region and increase the competitiveness of the Baltic states on financial markets. Also, this will contribute to the economic growth, job creation and stability of financial markets ", says Minister of Finance Vilius Šapoka.

The Ministry of Finance, along with the covered bonds, envisages regulating also another instrument — securitisation. The Lithuanian draft Law on Securitisation and Covered Bonds is currently being finalised and will be submitted to the Seimas for consideration in the near future. In Estonia, the Covered Bonds Act was adopted in February this year (which will be revised in line with the EBRD report) and Latvia is going to draw up such legislation in the near future and to bring forward for alignment to interested bodies.

The EBRD report is a part of a broader project aimed to create the pan-Baltic capital market. In November 2017 a Memorandum of Understanding was signed by the Ministers of Finance of the Baltic states (for Lithuania — Mr. Vilius Šapoka, for Latvia – Ms. Dana Reizniece-Ozola, for Estonia — Mr. Toomas Tõniste) by which the states agree to promote the development of the Baltic capital markets. This Memorandum of Understanding between the Baltic states is supported by the European Commission (EC) and EBRD.

The final EBRD report on the development of the Pan-Baltic Covered Bond Framework is available here.

Additional information:

Securitisation means a process when an issuer (credit, financial institutions) brings together several types of financial assets and issues securities on a basis thereof. Thus, creating new securities offered to investors, and the issuer may finance more the national economy with the funds received. As a general rule, this financing instrument was used in the housing loans market, but in the longer term it is also used in other areas, such as credit cards, car loans, etc.