European Central Bank grants LHV Pank the right to issue covered bonds

19.03.2020

European Central Bank grants LHV Pank the right to issue covered bonds

On the proposal of the Financial Supervision Authority, AS LHV Pank was granted permission by the European Central Bank to issue covered bonds so that LHV can include long-term financing secured by housing loans with which to reduce the price of money intended for lending.

LHV has been preparing for some time for the issuing of covered bonds, since this step is associated with last year’s acquisition of the private customer loan portfolio of Danske Bank A/S. The next steps involve LHV acquiring a rating for covered bond prospectus and to carry out the issuance of covered bonds. Covered bonds will be sold to institutional investors, such as pension funds or investment banks; however, the timing of the issuance will also depend on market developments.

According to Erki Kilu, Chairman of the Management Board of LHV Pank, the issuance of covered bonds is beneficial for the bank and clients as a whole, and clients who have taken out a home loan will see no changes. ”LHV’s liquidity has always been well managed, since the volume of the bank’s deposits is nearly double the volume of its loans. The issuing of covered bonds will make LHV's financing structure even stronger: it is a stable source of financing for us, the addition of which will make it more favourable for the bank to issue long-term loans. Following the issuance, LHV will have an even greater interest and opportunity to make good loan offers to Estonia’s people and companies”, said Kilu.

”At the same time, the importance of the covered bonds is that they also provide us with the opportunity to attract external financing and to use the liquidity offers of the European Central Bank even in difficult times”, added Kilu.

A covered bond is a bond, with the loans of the bank’s clients serving as the principal collateral. In order to protect investors, the bank must also keep sufficiently liquid assets in its pledge portfolio. The amount of collateral provided by the bank must be greater than the amount of the debt obligations associated with the bonds. The issuance of covered bonds will not change anything for people who have taken out a home loan from LHV. If the loan is added to the covered bond portfolio, then the client will continue to make loan and interest payments as before.

LHV Group is the largest domestic financial group and capital provider in Estonia. LHV Group’s key subsidiaries are LHV Pank and LHV Varahaldus. LHV employs over 450 people. LHV’s banking services are used by 212,000 clients, and pension funds managed by LHV have 177,000 active clients.

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