RBNZ bond monitoring praised by Fitch
(21 May 2012 – New Zealand) Fitch Ratings agency has praised the Reserve Bank of New Zealand (RBNZ) on its move to provide greater clarity over banks’ covered bond programmes.
The Government, at the behest of the central bank, introduced the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill earlier this month, with the aim to create a register of the covered bonds issued by locally registered banks.
The move towards a registration-type framework as opposed to detailed monitoring was also positively recognised by Fitch, saying its non-prescriptive nature stood in contrast with Germany and Britain where regulators were more actively involved.
Banks value covered bonds highly, as the investment products allow them to raise long-term funding at significantly lower costs by grouping A-grade assets into a cover pool and then securitising them.
Investors who buy these securities are classed as secured creditors over these assets, guaranteeing they stand first in line to receive payment should the bank default, and the register will provide greater detail and transparency over these assets.
It 'reinforces the legal certainty on their treatment in the event of an issuer becoming insolvent and accommodates contractual arrangements within the existing rated covered bond programmes'.
The move towards a registration-type framework as opposed to detailed monitoring was also positively recognised by Fitch, saying its non-prescriptive nature stood in contrast with Germany and Britain where regulators were more actively involved.
Banks value covered bonds highly, as the investment products allow them to raise long-term funding at significantly lower costs by grouping A-grade assets into a cover pool and then securitising them.
Investors who buy these securities are classed as secured creditors over these assets, guaranteeing they stand first in line to receive payment should the bank default, and the register will provide greater detail and transparency over these assets.
It 'reinforces the legal certainty on their treatment in the event of an issuer becoming insolvent and accommodates contractual arrangements within the existing rated covered bond programmes'.
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