Norway’s KLP Banken is setting up a mortgage covered bond issuer to lower its funding costs and generate financing to purchase retail mortgages booked with the KLP insurance company, said a KLP official.

An application to the Financial Services Authority (Finanstilsynet) for the registration of a mortgage covered bond entity, a Boligkreditt, will be sent shortly, and the bank is aiming to have the company established in the first half of next year, according to Kristian Lie-Pedersen, analyst at KLP Banken.

The aim is to lower KLP’s funding costs, but also to issue mortgage covered bonds to generate financing for KLP Banken to buy retail mortgages that are on the balance sheet of the KLP insurance company (Kommunal Landspensjoskasse), he said.

The Boligkreditt would initially only issue on the Norwegian kroner market given that volumes would not be sufficient for euro market-targeted deals, added Lie-Pedersen.

The rating process will start in January.

A mortgage covered bond company would be the KLP group’s second covered bond issuer; KLP Banken already owns a covered bond company, KLP Kommunekreditt, which issues public sector backed covered bonds.