The Slovak Ministry of Finance has published for consultation proposed amendments to Slovakia’s covered bond legislation, bringing to fruition efforts to address weaknesses in the country’s outdated law.

As previously reported, the Slovak Ministry of Finance and the National Bank of Slovakia have been working on changes to Slovakia’s covered bond legislation to align it with European best practices and encourage an expansion of the market.

The European Banking Authority (EBA) has highlighted several areas in which the current Slovak framework is not aligned or only partially aligned with its best practice guidelines. These include areas such as the use of derivatives, LTV limits and bankruptcy remoteness. Changes to Slovak legislation could also increase the rating uplift issuers could achieve for their covered bonds.

On Monday, the Slovak Ministry of Finance published the draft changes for consultation. An English translation of the proposed law is being prepared.

The consultation period will close on 24 July, and the law is expected to be considered by Slovakia’s parliament in September.

Slovak authorities have been assisted in updating the law by the European Bank for Reconstruction & Development (EBRD), which in January kicked off a Eu200m investment programme into Slovak mortgage covered bonds.

Market participants have previously stated that idiosyncrasies in the Slovak covered bond framework – which stems from 1990 – have held back the growth of the domestic market, in spite of growing funding needs for Slovak banks.

These include a requirement that 90% of all mortgage loans be financed by covered bonds, forcing banks to issue regularly and in small amounts, meaning issuance typically cannot qualify for preferential treatment as even Level 2 assets – for which they must be at least Eu250m – and restrictions on eligible collateral.

In January, VÚB issued the first Eu250m-sized Slovak covered bond, which was sold via an American auction.

Photo: National Bank of Slovakia; Credit: Roman Paholik/Wikimedia Commons