The Reserve Bank of New Zealand (Covered Bonds) Amendment Bill completed its passage through parliament on Tuesday, paving the way for the covered bond legislation to become law when it is granted Royal assent.

Kirk Hope, New Zealand Bankers’ Association

The committee stage of the bill and its third and final reading were completed on Tuesday, some 18 months after its first reading in May 2012.

The New Zealand Bankers’ Association welcomed the news.

“Covered bonds are a useful funding tool and provide benefits for both investors and the bond issuing banks,” said NZBA chief executive Kirk Hope. “They extend our banks’ access to cheaper and more stable offshore funding.

“They also give investors the confidence to continue to provide essential funding to help facilitate our economic growth. In turn, consumers benefit from banks’ access to offshore funding to help meet their needs and aspirations.”

Hope said that the new law brings the country into line with other jurisdictions.

“This Bill clarifies matters for investors and means that New Zealand covered bond issues are no longer at a competitive disadvantage with other countries,” he said.

New Zealand’s banks have been issuing covered bonds without the benefit of a legislative framework since June 2010, when Bank of New Zealand opened the market. In the meantime, Australia in October 2011 reversed a previous prohibition on covered bond issuance and enacted legislation.

The most recent covered bond from New Zealand was a Eu500m five year for ASB Finance Ltd, launched on 17 October.