Key Takeaways from the 38th ECBC Plenary Meeting with EMF-ECBC Secretary General Luca Bertalot #1

Following the successful 38th ECBC Plenary Meeting held in Stavanger last month, this episode takes a closer look at some of the key discussions, insights, and market developments that emerged from the event.

In this first episode “Mortgages Covered”, the EMF-ECBC’s new podcast series, Richard Kemmish, EMF-ECBC & ISMMA Consultant, is joined by Luca Bertalot, EMF-ECBC Secretary General, to reflect on the main takeaways from the 38th ECBC Plenary Meeting, including the focus on mortgage markets and the evolving landscape of covered bonds.

This episode of Mortgages Covered covers:

• The concept of a voluntary 28th Regime European mortgage guarantee scheme to improve housing affordability and access to home ownership.  
• The need for coordinated public and private sector action to address housing affordability challenges.  
• EMF-ECBC’s work supporting mortgage and capital market development in EU candidate countries and beyond.  
• The role of the Energy Efficient Mortgage Label in promoting transparency, standardisation and capital market access.  
• EMF-ECBC’s support for Ukraine through technical expertise, market intelligence, and regulatory guidance. 

Transcript

SPEAKER_00 0:00

After four long days, the 38th plenary of the ECBC has come to a close here in Stavanger. Some of the things we spoke about are exactly the same as we we've been speaking about in the previous 37, but there are quite a few new things, and in the next 20 minutes we're going to be discussing those with Luca Bertelot. Luca, it's been a very intensive four days.

SPEAKER_01 0:26

Are you tired? A bit. But I mean there's a sunny weather outside. Stavanger is an amazing city, and we have an amazing community gathering here. People coming from more than 30 countries, regulators, central banks, authority, ministers of finance, investors. So really a pleasure to welcome all these people here in Stavanger. And it's invigorating. Some of the conversations have been really stimulating. Yeah, I think we are acting as a real industry think tank, which is I think our main purpose. We are reflecting the paradigm around how this is changing, the real economy, geopolitics, big topics. And I think it was a fair service to our members to provide a real content to allow them to go back home and reflect and take action on how they can implement policy action in their countries.

SPEAKER_00 1:13

I think the point about the real economy is absolutely vital. In the past we used to speak about the bond market a lot. Now we're talking a lot more about mortgages. For you, what are the most important things that we've been discussing that really impact people's day-to-day lives?

SPEAKER_01 1:26

Well, I think we are trying to develop an idea of an ecosystem. So where actually the bond market can be only linked to the retail activities and the consumer angle. So it was very important we could get a feeling of the value chain and how important it is to streamline to make the value chain more efficient, reduce cost where possible, and improve harmonization. That's what we are trying to do. In an optic of uh single market, and an optica of reinforcing the single market as much as possible, and make the life of investors easier from a compliance point of view.

SPEAKER_00 2:01

Those kind of things like the better disclosure, the harmonized transparency templates are things we've been working on for a long time. But I was thinking also about some of the new stuff: the idea of the 28th regime and mortgage guarantees. Tell me how that's been received at this plenary, that idea of yours.

SPEAKER_01 2:15

Well, there is a strong support from the plenary. I think uh all the stakeholders involved uh are really supporting this idea of creating an umbrella that can protect a bit the banks in their lending activities, especially on fragile borrowers. I think it's very important to have a European guarantee that is taking action there where is needed. Also to allow countries with different levels of mortgage penetration to actually converge over time. Uh, mortgages are anyhow a mitigant for the middle class, is providing help. And uh um we are also supporting a lot of accessing countries. We had the pleasure to have the governor of Moldova in a critical moment because I mean on Monday the Romanian government uh felt, I mean, it was very interesting to have a real-time um comment from the governor. Uh, and also what we have done is that we are coming with a concrete proposal. The steering committee, the executive committee, and the EMF have been working for months to put on the table a strong proposal to support the housing agenda of the European Commission. So tell me how that works in practice, what your proposal is and in detail. The the focus, the focal point of the European Commission is improve affordability. And in the mortgage space, the affordability it means uh very simple things. Trying to allow young people to enter in the mortgage space, which means reducing the down payment, uh, reducing the interest rate, and improve the capacity of the owner of the house, the household, to manage cost over time of the life of the uh of the mortgage. Well, down payment can be fixed by a public guarantee that can allow the banks to arrow out of 100%, for example, and to grant more money and avoid to use uh the savings of the uh household as a uh as a guarantee for for the loan. Uh it worked very nicely in a lot of countries, the Netherlands, in Italy, in Spain, in Moldova, in Romania, and in Greece. Uh, and well, I think there is room to create a European umbrella in this space. We also believe that um competition is also another key word. I think housing was the first key word. The second key word of the plenary was uh competitiveness, simplification. And uh there is a lot of room in the current uh prudential uh structure that we have in Europe to allow lenders to be a bit more efficient in the way how they uh um they lend money, and uh uh and also a simplification for the investors could help investors to be more uh attracted by the mortgage market. So those are the key points discussed. I think there was an overwhelming consensus that's the way forward. Also, the world of EIB, the European Investment Bank, the world of the Commission that supported our uh our initiative, uh, where I think uh indicating that that's the right direction.

SPEAKER_00 5:12

Affordability is clearly such an important topic. Wherever you go in Europe, in the world, you just speak to the taxi driver, you speak to the guy making the coffee, it's pretty central to their concerns. But then when you speak to politicians, a lot of the time, fiscal deficits are a big issue. How do we square the circle of providing support for people for mortgage borrowers without adding to the debt GDP ratio?

SPEAKER_01 5:36

Yeah, I think that that's is highlighting the role of the capital markets in the sense that I mean the capital markets can take action for the middle class and actually will allow member states to focus their public debt on more vulnerable uh elements. So I think a combination of private and public intervention is the solution for the housing market, and that's where we have to uh build a contribution which can act from Romania to Portugal, from Malta to uh Walt Stalanga.

SPEAKER_00 6:12

Um you mentioned also the central bank the uh governor of the central bank of Moldova, uh Anka Draga, who gave a keynote speech, which is available on one of these podcasts. Um let's talk about the other accession countries. It's clearly very important for quite a lot of countries. The path to EU, no matter if that's two years or twenty years in the future, the pathway is very important. Tell me about what we're trying to do in those countries to develop mortgage markets and to develop capital markets.

SPEAKER_01 6:41

Well, I I think uh first and foremost it is important to support them in producing legislation which will be aligned with the European legislation. And I think we can play a role as ECBC to do a kind of advocacy services to help them in writing legislation. Montenegro just implemented a cover bond legislation and is about to enter in the European Union. Another important thing that we can do is to support their capital markets, going there, bringing infrastructure, knowledge, service providers, investment banks that can support local lenders or maybe bringing also foreign lenders to be active in those markets. Um another important thing that we are doing, and we had an amazing round table on pooling models, is to help those countries to uh gather assets in order to reach a critical mass. That's I think fundamental for especially the Balkan area. Um and then trying to stimulate also the investors to create labels that can bring investors even in areas where they will have difficulties in terms of compliance. So a quality label could actually act as a lighthouse for banks and investors in entering in these new markets.

SPEAKER_00 7:57

The point about critical mass is absolutely vital, and I guess there's there's two ways that you can do that. You can either aggregate all of the banks, the mortgages from all of the banks in a country, as they do in, for example, the the the ISMA countries like Tanzania. Or you can do it cross-border. And I'm thinking in the Balkans in particular, you've got the same banking groups operating in seven six or seven Balkan states on a pretty much a cross-border basis. So i is there the potential, is it gonna be something which is interesting for investors to buy pan Balkan covered bonds?

SPEAKER_01 8:31

Well, probably yes, if the economy will be growing, I think it's uh it's important to support those countries. Uh, and uh we have to figure out a way how we can mitigate the potential risk of having small countries acting with different legislation and fragmentation of the market. Uh, our experience is that investors are reducing their time in analytic capacity in the sense they would like to have an easy spreadsheet that will explain what is happening in Albania, what is happening in Montenegro, and uh probably they should have a similar approach to the two countries. That's the logic a bit of the cover bond label. As you said, I think it was very important to develop the harmonized transparency template. We are discussing a revision for next year, uh, trying to take on board suggestions coming from the market. But um, the label is a comprehensive uh passepartout for investors when they want to enter in a country. Uh and that's what we are building little by little, step by step.

SPEAKER_00 9:31

One of the uh highlights for me is is the internationalization and the idea. We had a conversation on stage about an ISMA label, and the idea that the covered bond label, which works so well 20 years ago to unify and standardize and raise the standards, could start to apply in emerging markets, covered in emerging markets, mortgage markets, potentially emerging markets, covered bond markets.

SPEAKER_01 9:54

Yeah, I I think that um we have also developed over the years not only the covered bond label but uh also the energy efficiency mortgage label, which is a sustainable and affordable label. So this could be the filter to allow banks in Europe, but also outside Europe, to access capital markets. This will create harmonization, simplicity, uh efficiency in the execution, and also standardization in the retail activities. This is very important. Uh is important for the local lenders, uh, but it's also important as Olaf Pimper from Commerce Bank said very clearly in the panel that I mean he needs label to guide uh compliance department uh on where they can go. Uh so I think there is an important role. We are discussing this in ISMA. Uh doesn't go together. Label, I think, should go with other elements, which is uh a nice comparative analysis of the different markets. We should provide transparency to investors and also we should have a guarantee scheme also there. And probably there is a role for institutions like the World Bank, EBRD, to step in and creating a kind of umbrella capacity for supporting emerging markets in this uh challenge.

SPEAKER_00 11:10

I think that's uh that's absolutely right. And um with the work of ISMA to the the comparisons of the different models is very important, and that's something that I know we've been working on. Um what I thought was really interesting is the panel of the non-ISMA pooling models, the existing ones, which are all very well known to our listeners as covered bond issuers, people like CRH, people like OP Mortgage Bank, who aggregate mortgages here. They've got a huge amount to share with the ISMA members in in Mongolia, in Tanzania, in wherever.

SPEAKER_01 11:43

Yeah, I think that it there is a win-win uh ecosystem that we can create because uh, of course, the experience of the European mortgage aggregators can be very useful for the markets who are trying to build the market. Uh, those markets also have important investors that can be guided towards cover bonds, for example. You're talking sovereign wealth funds. Exactly. Yeah. I mean, quite often the mortgage referencing companies are very close to, I would say, uh the capital markets network of that country, the central banks, and uh and they could actually start to invest and discover new markets. I think in Finland, France, Norway. But also on the basic of the value chain, I mean, uh, the challenge for those markets is to bring informal workers in the in the mortgage space. I mean, Europe, we are not very far away with this problem. The young generation, they don't have the contract, the labor contract we had 20 years ago. So I think analyzing digital solutions that can help banks, rating agencies to cope with this kind of lack of uh formal labor market. It's important for emerging markets, fundamental, but it's also quite valid here in Europe. Uh so learning from each other, I think, is an excellent uh uh process. We are very keen on seeing the ACBC as a osmosis, you know, where everyone is taking from each other. We build something new together to adapt to market condition.

SPEAKER_00 13:09

I think the point about um informal incomes also in Europe is absolutely vital. You hear all about these zero-hour contracts, and all of the rules which govern mortgages are kind of based on an old way of doing things. A fixed income, you're gonna buy your house by the time you retire. All of the bar rules, all the regulations are around that. And I think potentially I think potentially one of the advantages of the guarantee is it could guarantee things which don't necessarily fit in and it bring it into the existing underwriting rules and bank capital rules. And uh particularly in emerging markets as well, countries like Tanzania.

SPEAKER_01 13:46

Also, because if you don't go out from the traditional uh space, you don't have critical en masse. You remain in the functionaire of the state, which can be quite limited. You know, we have a look at Tanzania as a mortgage market of 7,000 commun uh loans. Yeah, nothing in a country that large. I mean, uh in a big national champion in Europe are easily one million and a half mortgages in their portfolio. You know, I mean that that's the difference that we have to uh to manage.

SPEAKER_00 14:16

But as we know, in a country like Tanzania, the vast majority of people there are very young, have huge housing needs, and a lot of energy, a lot of entrepreneurialism. The buzz is quite incredible in those countries, but they just don't fit into traditional banking models.

SPEAKER_01 14:30

Well, I think in this new geopolitical space also, Europe should play a role of leadership. Yeah. Absolutely not colonialist. Don't take me wrong. I mean, but I mean we could play a role of being a financial center for reference. Uh and also if we want to be serious about sustainability, sustainability will be fixed in the emerging markets by providing urban solutions, financing, and also it will be possible to create in the future a carbon credit market for uh for new dwellings and things that can be built in those markets. I'm always um shocked by thinking that the Philippines have to produce 3 million of dwellings per year. You know, this can change the the reality of a mortgage market. This demand supply is a is a very difficult equilibrium to maintain. You know, um I think it isn't the role of uh housing regulators to build a supply for developers so we can have new supply into the market, and also the demand should be able to buy a house so that they should have capital markets funding. But this balance, if there is no equilibrium, you can have either huge house pricing, like we have in some markets, cutting out the young people. Uh so it's um an ecosystem where we have to involve all the actors here.

SPEAKER_00 15:50

I'm very conscious that in the cover bond market we're all only about the the one side of the equation, the demand, and we have to be very cognizant that if we improve demand without balancing measures, all we're gonna do is fuel house price inflation, which isn't good for anyone.

SPEAKER_01 16:05

We we can do something to also mitigate uh, for example, financing of SME is a big topic. And um, you know, on the 29th of May, EPBD should be implemented by members of the Energy Performance Building Directive. The Energy Performance Building Directive, sorry. Um, and um we need SME to be able to do retrofitting because public building, private building has to be retrofitted. We don't have the SME capacity. How we finance this? This is a big question, Mark. Well, I think that I mean improving the capacity of our bank to uh um to give targeted SME and maybe finance this on capital markets, it will be the solution. And the ESN with a green touch can be very helpful. Like at the same time, also an ESN with a defense touch can be very helpful. Uh so there is something that we can do for uh helping in mitigating and supporting the supply as well indirectly.

SPEAKER_00 17:01

Your reference to the defense, and I you know I hate to uh dark cloud on all of your perennial optimism. We had quite an involvement with the Ukrainian friends. Now you and I were in Ukraine a couple of weeks ago. Um, what do you think that we as a community can do for our Ukrainian friends?

SPEAKER_01 17:18

Well, first of all, offering intelligent support, which means uh giving them example and trying to guide their uh reform product. I mean, also there are a lot of opportunities in Ukraine. Is that I mean, in a wartime, important reform can have an acceleration which could help them in uh aligning with the European models in the view of accessing the European Union. So our experience can support them in this preparatory phase, waiting for the peace. Uh, I think it's also important to uh tell what's going on. I think it's important to uh I think we had the honor to have the Deputy Minister of Defense and the Deputy Minister of Economy in our plenary. Uh so two very important uh players into the market, and both they need houses. Uh the houses are fundamental for the defense system, like for the peace and economical growth uh afterwards. So uh this this cog is a cog that has to be fixed because now they have no access to mortgages apart from one single lender, which is concentrated in 98% of the market. So we need to engage the capital sector to design a roadmap, probably phasing with an intense participation of the public sector at the beginning, and then more private actors in a phase two uh later on. So we we are trying to support uh our friends in Kiev and um mobilize the community around this. So it was also important to give visibility um to these important ministers during the plenary meeting.

SPEAKER_00 18:56

Um as I said, we um yeah, it's the 38th plenary. We've got the 39th plenary in six months in beautiful Seville. What are your plans for that? Just briefly tell me what's what can I look forward to there?

SPEAKER_01 19:08

Well, I think it's very difficult to design an agenda in those days where everything can change with a tweet in the morning. Um but I mean, of course, we will have a continuation on our commitment to housing, to simplification of the uh potential landscape, to make this very, very efficient. I think we will give visibility to our global activities uh with a clear focus on Europe. I think we are leveraging on our global presence to make sure to not do the mistake that we did we have done a few years ago. Not being present on a global space, we'll leave Europe without protection in case of a negotiation of a Basel agreement. So probably we will see a new negotiation of the Basel Agreement. We are making sure to have a global presence, otherwise, we are alone, like it happened in 2010 when we were negotiating the Basel Tree Agreement.

SPEAKER_00 19:59

Certainly looking forward to that. It's only six months away. A lot of the topics that we've spoken about on this podcast have been available in some of the other uh recordings that we've made. We've spoken to all of the people at the pavilion, all of those are available. Just click on the various icons. Also, some of our keynote speeches. So uh Luca mentioned Anka Dragu from the um the governor of the uh central bank of Moldova. Um there's a fascinating interview with um uh the the Tanzanian about the Tanzanian banking system, all that and much other great content available on this channel. Um thank you for listening, and Luca, thank you very much for joining us. Thank you very much. See you in CVU. The cameras are still running whilst we were dancing, really, right? Yeah.