The European Central Bank has classified two Royal Bank of Canada euro issues as covered bonds in its collateral framework in a fillip for Canadian issuance following the introduction of the country’s new legislative framework.

Although a 10 year issue launched by RBC in January 2008 had previously been treated as a covered bond – as had a now-matured Canadian Imperial Bank of Commerce (CIBC) issue – the ECB is understood to have reappraised Canadian issuance in light of the introduction of a legislative framework in 2012.

“The old 2018 was indeed classified as a covered bond back in 2008,” said a banker. “But since then the Canadians have introduced their law and the ECB has informally adopted a bit more of a ‘purist’ approach on eligibility – for example, their decisions on retained covered bonds and ABS as cover assets.

“I guess that’s why the ECB went through a new approval process for the Canadians and didn’t just apply the decision from 2008.”

The two RBC issues that are included in the ECB’s list of marketable assets are the old 2018 issue and a Eu2bn seven year covered bond launched on 25 July that was the first Canadian euro issue since 2008. The seven year was added to the ECB’s list yesterday (Monday).

Market participants said that they expect a Eu1.5bn five year RBC deal launched in October and a Eu1bn five year CIBC issue sold in July to be added to the ECB’s list soon, even if the central bank approves issuance on a case by case basis.

The RBC issues are designated structured covered bonds (asset type AT13) by the ECB, putting them in liquidity category 3 alongside non-UCITS compliant covered bonds and multi-cédulas, for example. While not enjoying as favourable a treatment as UCITs compliant “jumbo” covered bonds in liquidity category 2, they are treated substantially better than senior unsecured debt in category 4, which Canadian issuance would have been classified as had it not been deemed eligible as covered bonds. For example, the haircut for triple-A issues of five to seven years in liquidity category 3 is 4.5%, compared with 3.5% for category 2 and 12.5% for category 4.

However, market participants said they do not expect the classification of Canadian issuance to have an impact on spreads.

“It’s good to have, of course,” said Ralf Grossmann, head of covered bond origination at Société Générale, “but the ECB eligibility is not a key driver for distribution and the market also anticipated that this would happen.”

Another banker noted that while Canadian issuance qualifies for ECB repo by virtue of being from a Group of Ten country, eligibility is beyond the reach of issuers from Australia since it is not a G10 country.

Meanwhile National Bank of Canada was yesterday added to the Canadian covered bonds registry on the Canada Mortgage & Housing Corporation (CMHC) website. The bank yesterday announced a European roadshow for a new legislative programme but although its programme was approved by CMHC last week it did not appear on the regulator’s website at the time of the announcement.

A banker noted that more generally the approval process for Canadian issuers and issuance has at times taken longer than expected and involves several steps that do not end with the registration of a new programme.