Ukraine’s Verkhovna Rada has approved in the first reading Draft Law No. 15172, “On Securitization and Covered Bonds.” The legislation aims to align Ukraine’s financial market with EU standards and create conditions for banks to attract significantly more funding for long-term lending to households and businesses.
The main objective is to allow banks to transform existing long-term loans, such as mortgages, into liquid securities. Instead of waiting 10–20 years for borrowers to repay their loans, banks would be able to raise funds from investors backed by those loan portfolios and immediately use the proceeds to issue new loans.
“The adoption of this law creates market conditions for systematically lowering the cost of credit for citizens and businesses. We are introducing new long-term investment instruments and bringing Ukrainian legislation closer to EU standards. This will enable banks to raise funding from investors at lower discounts, ultimately increasing competition and reducing borrowing costs, including mortgage rates,” said Yegor Perelyhin, Deputy Minister of Economy, Environment and Agriculture of Ukraine.
The draft law introduces several key reforms:
- New financial instruments: It creates modern securities, including securitization bonds and covered bonds, which will help attract long-term capital into the economy, including investments from private pension funds and foreign investors.
- Specialized financing platforms: The legislation establishes special-purpose vehicle (SPV) financial companies that will purchase pools of loans from banks and issue securities backed by those assets, ensuring greater transparency.
- Double investor protection: Investors purchasing the new bonds will have claims both against the issuing bank and against the underlying collateral pool.
- Bankruptcy protection: If a bank becomes insolvent, investors’ funds and collateral will remain separate from the bank’s general bankruptcy estate and cannot be used to satisfy other creditors.
- Independent oversight: The reform introduces new market participants, including independent supervisors responsible for monitoring collateral pools and special administrators who would manage the loan portfolios if a bank fails.
- EU-quality standards: The legislation implements the EU’s Simple, Transparent and Standardised (STS) securitization framework. Authorized verification agents will certify compliance with STS requirements, while the National Securities and Stock Market Commission will oversee the market.
- Comprehensive legislative reform: The bill amends more than 15 existing laws, including legislation governing banks, capital markets, and the depository system, while repealing the outdated Law on Mortgage Bonds. Additional amendments to the Tax Code and Civil Code will be submitted to complete the reform.
In practice, the legislation establishes a mechanism for the repeated use of bank capital, significantly expanding lending capacity without requiring a proportional increase in banks’ funding base. Rather than treating bank loans as one-time assets, the reform allows them to be recycled into new financing, boosting the economy’s access to long-term credit.
