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Roschier-Holmberg & Waselius Helsinki

A government bill submitted to the Finnish parliament in November 1999 proposes a new Act on Mortgage Banks intended to become effective in January 2000. The proposed act is aimed at diversifying the Finnish securities market from the institutional investors' point of view by introducing a new investment object.

Under the proposed act, mortgage banks may be established as a separate legal entity for the purpose of granting credits to the public secured by shares in a housing company or a real estate company, by rights of residence or by real estate mortgages. The mortgage banks would also be entitled to grant credits to public corporations or against guarantees granted by a public corporation as well as to conduct related business activities, subject to the provisions of the Finnish Credit Institutions Act.

Such credits granted by a mortgage bank may be financed through secured bonds issued by the mortgage bank in question. In such case the credits granted (including the underlying security) would be used as security for the bonds issued by entering the credits into a separate security register held by the mortgage bank and supervised by the Finnish Financial Supervision. Pursuant to the proposed act, no other entities than mortgage banks would be entitled to issue bonds secured by credits corresponding to the credits described above.

The position of a bondholder is strengthened by the fact that under the proposed act, a single credit granted by a mortgage bank would be limited to an amount corresponding to 60% of the market value of the shares or the real estate that has been provided as security for the underlying credits. Further, a receivable pertaining to a bond loan would be given a preferred status in the bankruptcy proceedings of a mortgage bank.

Risto Ojantakanen

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