A covered bond from the Principality of Liechtenstein is a new term that market participants will need to get used to: the two largest financial institutions, the Princely Bank LGT and the «state-owned» Liechtensteinische Landesbank (LLB), have jointly founded the Liechtenstein Covered Bond Institute (Liechtensteinisches Pfandbriefinstitut, LPBI). According to Tuesday's media release, this enables the Liechtenstein financial center to issue covered bonds for the first time - bonds secured by prime mortgages on Liechtenstein real estate.

The joint platform, which is to be open to all affiliated Liechtenstein banks for covered bond issuance, is intended to close a gap in Liechtenstein's capital market and strengthen the long-term stability of the financial center.

Dedicated Covered Bond Legislation

The legal basis is provided by the Covered Bond Act, which was passed by Parliament in December 2024 and entered into force in April 2025. LPBI is directly supervised by the Liechtenstein Financial Market Authority.

In Switzerland, the covered bond is already a well-established instrument. Under the Covered Bond Act of 1931, the Pfandbriefzentrale Schweizer Kantonalbanken and the Pfandbriefbank schweizerischer Hypothekarinstitute (for all other banks; LGT and LLB Switzerland are also members) are authorised to issue Swiss covered bonds. Covered bond issues by far constitute the largest segment of the Swiss capital market, ahead even of Confederation bonds.

Switzerland As a Model

The communiqué explicitly refers to the «very long and successful tradition» of the Swiss covered bond. As in Switzerland, the instrument is intended to allow banks to broaden their refinancing base, thereby contributing to the stability of the real estate market. At the same time, it provides risk-averse investors with an attractive investment opportunity.

Michael Bürge, CFO of LGT Group, comments: «With the new covered bond institute, we are creating greater stability and refinancing diversity for the Liechtenstein financial centre. Our clients will also benefit – through a resilient mortgage market and long-term planning security.»

LLB CEO Christoph Reich adds: «The close cooperation between LGT and LLB on this project demonstrates the innovative strength of the Liechtenstein financial centre. With the new covered bond institute, we are creating forward-looking infrastructure that opens up additional opportunities for banks and sustainably supports the further development of the capital market».

The first issuance of Liechtenstein covered bonds are expected in the coming months.

An Addition to the Swiss Franc Bond Market

The new institute will also require staff. The co-CEO roles will be assumed by Georg Stöckl (LGT) as CEO and Bettina Halter (LLB) as CRO. The board of directors comprises Christoph Reich (LLB, Chairman), Michael Bürge (LGT, Vice Chairman), Daniel Bose (LGT), Andreas Oehler (LLB) and Karl Laternser from real estate valuation and advisory firm Bewera.

For the Swiss capital market, the new covered bond is likely to represent an enrichment. Liechtenstein banks are regular issuers of conventional (senior but unsecured) bonds, not least due to the shared national currency, the Swiss franc. In the foreign issuer segment, there is already a broad range of international covered bonds issued in Swiss francs.