Cyprus’s Government Will Allow Banks to Issue Covered Bonds

Cyprus’s government will allow the issue of covered bonds by the eastern Mediterranean island’s banks to help them drain cheaper liquidity from abroad, government spokesman Stefanos Stefanou said.

“The issue of covered bonds was jointly requested by the banks and the Central Bank of Cyprus, which may among other things contribute to the reduction of interest rates,” Stefanou told reporters, according to a statement e-mailed to Bloomberg News. A relevant bill “will be submitted to the parliament”.

Banks in the euro area’s second-smallest economy offered in October the highest interest rates to new depositors in the 16-nation bloc, according to the European Central Bank.

Covered bonds, mostly sold by European banks, can attract higher credit ratings because they are backed by assets such as mortgages that stay on the lender’s balance sheet.

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