Belgian covered bond legislation has been drafted with simplicity in mind, Oscar Meester, head of asset based funding at BNP Paribas Fortis, told an ECBC plenary on Wednesday, a day when the country’s political parties achieved a major breakthrough in talks on forming a government.

Draft covered bond legislation has been submitted to the National Bank of Belgium (NBB), with banks operating under the auspices of the Belgian Banking Association (Febelfin) now waiting to hear back from NBB on comments they submitted on the draft. Meester said that the NBB said post-summer that it is dealing with the draft legislation with “very high priority”.

Displaying a map of covered bond jurisdictions across Europe showing a gap where Belgium lies, he said: “That white spot has been an itch that we are willing to scratch for a long time now.”

Meester said that contrary to people’s perceptions of the political situation in Belgium the country does have a government and that this caretaker government is able to vote on legislation.

The potential establishment of a new, elected federal government in the meantime, however, could influence the timing of passage of the legislation, he said, adding that there was a “clearly a question mark” if this would happen in 2011.

Belgium’s eight political parties last week announced that they had reached a consensus on questions related to a disputed electoral district in the Brussels region, a move that has been hailed as a breakthrough in efforts to form an elected government.

When asked when the first covered bond from Belgium could be expected, Meester answered: “Just after it gets voted.”

Providing an overview of the key elements of the Belgian covered bond legislation in its latest draft form, Meester said that it was informed by a rationale along the lines of “the simpler, the better”.

“We tried to be as ‘common’ as possible,” he added, explaining that an old proposal had been based on French and Luxembourg structures, but this had been “stepped away from”, and that UK and Dutch issuance models had also been looked at. The draft Belgian legislation foresees issuance by universal banks.

Meester also provided an overview of the draft legislation with respect to the criteria for loan valuation and loan-to-value ratios, the role of the cover pool monitor and banking supervision, and asset-liability management.  With regards to the latter, he noted that the framework provides for a 180 day liquidity test, and that intra-group liquidity facilities are not allowed to count toward this.

The residential mortgage market in Belgium amounted to around Eu147bn in 2009, according to figures presented by Meester, 73% (Eu107bn) of which is accounted for by the country’s four largest banks – BNP Paribas Fortis, Dexia, ING and KBC.

Belgian banks have around Eu60bn of retained securitisations, which Meester said could be seen as “the first suspects to be turned into covered bonds”.

Discussing the possibility of public sector backed covered bond issuance from Belgium, he noted that the volume of eligible assets would be much lower than for mortgage backed issuance, but said that there could be some “interesting” transactions if need be.