Ålandsbanken of Finland hopes to launch its first covered bond, a non-benchmark, in the autumn, after having been granted a license to issue covered bonds on 28 July.

The bank decided to launch a covered bond programme because it was seen as a natural next step and a better funding source than senior unsecured debt, Magnus Linnersand, group treasurer at Ålandsbanken, told The Covered Bond Report.

“Being able to capitalise out of our mortgage stock will lower our funding costs,” he said, adding that the bank had issued senior unsecured and subordinated debt in the past, which had involved higher costs than covered bonds.

Linnersand said the bank is looking to issue “as soon as possible” but acknowledged that a volatile market had made choosing when to issue trickier.

“On a daily basis we’re working with different banks to see what we can do and when we can act,” he said.

“When we can issue we will approach bondholders in Finland and the Nordic region first, and then we’ll move to international investors,” he added.

Ålandsbanken has a balance sheet of Eu3.5bn and a total mortgage book of Eu1.4bn. Linnersand said once the issuer accounts for the LTV ratio of 70% the cover pool should amount to about Eu1bn.

“We’re not going to be able to launch benchmarks,” he said. “In covered bond terms, we’re looking more at jumbolinos and smaller sizes.”

The bank was authorised by the Finnish Financial Supervisory Authority (FSA) this year under a new Finnish covered bond law that was introduced in August 2010 that market participants had said could encourage smaller financial institutions to take up the funding instrument.

The legislation enables retail banks to issue covered bonds without requiring them to set up a separate mortgage bank. Additionally, existing issuers can “source” other issuers, allowing them to issue through a pre-existing issuer instead of registering with the Finnish FSA.

Ålandsbanken will be taking advantage of the option of issuing directly off its balance sheet.

“We are going through the new legislation,” said Linnersand, “which is effectively the same thing to the investor as going to a pre-existing issuer.

“For a start we will not be benefiting from the additional facility in the new legislation.”

Ålandsbanken is not yet rated and nor is its covered bond programme, and Linnersand said that the bank is still discussing any potential ratings.