Covered Bonds : Overview of Asian covered bond market

In 2014, t he Asian covered bond market has significantly increased after the introduction of the Covered bond law in Singapore, leading to the arrival of new players in this region such as DBS, UOB or OCBC. In 2016, Asian issuers have gone one step forward by issuing the first Singapore covered bond in euro. So far, the outstanding of the Asian cover ed bond market amounts to EUR12.2 bn (EUR equivalent) where Singapore Covered bonds represent 64 % and South Korean covered bonds 36 % . In Singapore, three players are active in t he covered bond market: UOB, OCBC and DBS, all benefitting from a Aaa rating for their covered bond programmes . The main currencies used are the euro followed by USD, GBP and AUD depending o n the cross-currency swap. Currently , all the covered bonds programme in Singapore use a SPV Structure. Cover pools include mainly residential mortgage loans located in Singapore with a Loan-to-Value limit of 80% for inclusion. Thanks to their rating, the three current programmes from UOB, DBS and OCBC benefit from a 20% RWA and a LCR level 2A eligibility for European banks. These elements, combined with the pick-up offered vs CBPP3 eligible covered bonds (c. 17 bp vs German covered bonds) explain the appetite for these CB for European investors representing on average 78 % of the Singapore CB transactions. From an economical perspective, the Singaporean economy has rebounded after weak growth in 2016 thanks to better trade performance, low interest rates and favorable exchange rate. Couple d with excess liquidity, the real estate sector has staged a modest recovery in recent quarters. Our economist expects the uptrend to continue into H2 2018. That said , the pace of growth will be held back but weak structural underlying as uncertainty to growth rises thanks to rising US China trade tensions and worsening demographic trends. Singapore property, like everywhere else, is affected by short-term and structural macroeconomic conditions that impact demand, inventories, investment alternatives and government policy. After years of sluggish growth, the sector has staged a gradual rebound thanks to relatively low interest rates, a recovery of growth and reduced inventory. Despite weak demographic growth, Singaporean households have plenty of savings, which means their demand for real investment will keep a bottom to support the real estate sector. South Korea: Two covered bond frameworks coexist in South Korea: i ) Covered Bonds issued through the covered bond act which entered into force in December 2013 and ii) those through the Korea Housing Finance Corporation. So far, no issuance has emerge d in euro, only in USD and KRW. Regular issuances are coming from Korea Housing Finance Corporation (KHFC) and Kookmin Bank.