Two of the main private banks in the tiny European principality have created an institute that will issue a type of debt instrument backed by senior forms of mortgage debt. LLB and LGT said such bonds expand their refinancing base and make the state's real estate market more robust.

Two Liechtenstein-headquartered private banks – LGT and Liechtensteinische Landesbank (LLB) – have jointly set up a financial institute that is able to issue what are called covered bonds.

These Pfandbriefe covered bonds are debt instruments secured by first-lien mortgages on Liechtenstein property. (Such mortgages are the most senior type of loan to be secured against a property, giving that lender the first legal right to seize and sell the home if the borrower defaults.)

The banks have established the Liechtensteinisches Pfandbriefinstitut (LPBI), which will be able to issue Pfandbriefe bonds; the institute “closes a gap in the Liechtenstein capital market and strengthens the long-term stability of the financial centre,” they said in a statement earlier this week.

The new Pfandbriefe act, adopted by the Liechtenstein Landtag legislature in December 2024, effective since April 2025, establishes the legal framework for the LPBI. As a licensed financial institution, the LPBI is directly supervised by the Financial Market Authority Liechtenstein.

The covered bonds are backed by first-lien mortgages on Liechtenstein real estate and are subject to statutory requirements, the statement said.

Pfandbriefe have operated in several jurisdictions, including Switzerland. Their protections consist of two elements: the obligations of the issuing bank and the underlying real estate collateral.

The banks said covered bonds broaden banks’ refinancing base, contributing to the long-term stability of the Liechtenstein real-estate market.

“With the new Pfandbriefinstitut, we are strengthening the stability of the Liechtenstein financial centre and broadening its refinancing landscape. Our clients will also benefit, among other things, from a more resilient mortgage market and improved long-term planning certainty,” Michael Bürge, chief financial officer of LGT Group, said.

Christoph Reich, CEO of LLB, added: “The new covered bond institute establishes infrastructure that opens up additional opportunities for banks and supports the long-term development of the capital market.”

Dr Georg Stöckl (LGT) will serve as CEO of the joint executive board of the institute; Bettina Halter (LLB) will become chief risk officer. The LPBI will issue its first covered-bonds in the coming months, the banks added.