The Parliament of Georgia has passed the Law of Georgia on Mortgage Covered bonds. The document was authored by the National Bank of Georgia and the Ministry of Economy and Sustainable Development of Georgia.

 

Mortgage covered bond is a special type of a secured note with a long history in Europe. It is regarded, in addition to deposits and other forms of raising funds, as a relatively cheap and stable source of financing for credit institutions. After the adoption of the new law, it will become possible to issue such notes in Georgia as well. 

 

The National Bank of Georgia started working on the mortgage covered bond framework in 2018. Throughout the process, experts of the Asian Development Bank, European Bank for Reconstruction and Development, International Financial Corporation were actively involved in deliberations as well as active consultations were held with commercial banks as potential issuers.

 

The law reflects the best European practice and experience including the new directive adopted in the European Union on 27 November 2019. At the beginning of this year, the leading rating Agency Moody’s made the following announcement with respect to the new framework: "Georgia’s new covered bond law is a solid foundation to develop the market. The law has strong safeguards for investors, similar to rules in other European countries, including provisions to preserve cover pool quality, and overcollateralization requirements that are higher than in some other established covered bond markets".

 

Providing guarantees for the protection of covered bond holders as well as introducing structural features of the product through the law will significantly strengthen the confidence of potential investors towards this financial instrument. Investors interested in mortgage covered bonds could be commercial banks, also investment funds or pension funds making investments for portfolio diversification or any other purpose. Commercial banks will also be able to use mortgage covered bonds as collateral for conducting monetary operations with the National Bank of Georgia.

 

The law enters into force upon 3 months from its publication (16/12/2022). Within this period, the National Bank of Georgia will promulgate implementing rules under the law. Draft rules will be published in advance for consultation so that market participants and other interested persons can provide their feedback.