WELLINGTON Jan 21 New Zealand's banks will be
limited in issuing covered bonds to 10 percent of their total
assets, the central bank said on Friday.
Local banks have started issuing covered bonds, securities
backed by flows from mortgages but which remain on the issuer's
balance sheet, to diversify their funding sources and lower
"An initial limit of 10 percent will allow banks to develop
covered bond programmes, whilst providing a conservative ceiling
on issuance in the short term," said Reserve Bank of NZ deputy
governor Grant Spencer.
The limit, which will be reviewed in two years, will be
calculated on the value of the assets encumbered for the benefit
of the bond holders.
Covered bonds are seen as safer than securitised mortgages
since in the event of a default holders of covered bonds have a
claim on the underlying assets as well as the bank itself,
although some authorities, such as in Australia, have opposed
because they rank ahead of depositors for payment if a bank
The issuance of covered bonds is in its early stages in New
Zealand, but they are used extensively in Europe to meet banks'
long-term funding needs.
The Bank of New Zealand launched the country's first such
bond last June as part of a planned NZ$3 billion
(Reporting by Gyles Beckford; editing by Balazs Koranyi)