Belgium’s new covered bond framework will provide the country’s banks with an important means of tapping large loan books for secured funding, said a Moody’s analyst, with some investors said to be “parking cash” in the hope that inaugural supply from the country will emerge this year.

Belgian banks have a sound founding structure based on a historically high and stable domestic deposit base, said Guillaume Leglise, associate analyst at Moody’s, but their liquidity positions have deteriorated since 2011, primarily as a result of more challenging access to wholesale funding markets.

“We estimate that a portion of banks’ short term funding was not rolled over in 2011,” he said, “resulting in a 24% decline in the amount of outstanding wholesale debt for the four largest banks.

“The covered bond framework will provide banks with the ability to raise secured funding, whose usage before the royal decree had been restricted to securitisations.”

According to the latest statistics of the National Bank of Belgium these are mainly kept on balance sheet and potentially used as collateral to access ECB funding facilities, added Leglise, with the amount of external RMBS very limited.

He noted that Belfius Bank has a large pool of public sector loans eligible as collateral for covered bonds, with Fortis Bank and KBC Bank among other Belgian banks that will benefit from the new legal framework.

“We expect covered bonds to be an important funding source for Belgian banks,” he said. “These banks have large portfolios of eligible and unencumbered high quality residential mortgage and public sector loans that we expect will serve as the basis for covered bond issuance as soon as year-end.”

Belfius has already been on an introductory credit roadshow, and a syndicate official said that market participants are hoping inaugural Belgian supply will hit the market before year-end, with investors “keeping power dry” for new jurisdictions such as Belgium. Belfius is said to be keen to come to market this year.

Any issuance from the country is likely to be warmly welcomed by investors given a lack of supply this year, which in combination with tight spreads is said to be prompting accounts to look to other markets, moving up the credit spectrum into senior unsecured or turning to the SSA market.