Announcement: Moody's: Ongoing development of Singapore covered bond market and other positive attributes support refinancing

Moody's Investors Service says that the ongoing development and other positive attributes of the Singapore covered bond market support the refinancing of covered bonds in the event of issuer default. Following a review of the market, Moody's has lowered the refinancing margin it assumes when assessing Singapore covered bonds.

"Although Singapore's covered bond market is relatively young, many of the positive attributes it has to support refinancing in the event of an issuer default are similar to those of more established covered bond markets," says Joe Wong, a Moody's Vice President and Senior Analyst.

"The market has seen periodic issuance since the first deal was launched in 2015 and has an established base of investors," says Wong, adding, "These features make it more likely for the cover pool to be acquired at a long-term break-even price when it needs to be sold to refinance maturing covered bonds."

Wong further points out that refinancing is supported by the legal and contractual framework for these bonds, which compares well with other common law countries, and by the quality of the cover pool assets.

Moody's conclusions are contained in its just-released report, "Covered bonds -- Singapore: Market development and other positive attributes support refinancing".

As a result of the lower refinancing margin -- which implies lower financing risk -- that Moody's now assumes for Singapore covered bonds, the minimum over-collateralisation that it deems consistent for an Aaa rating (Aaa OC) has also declined.

In particular, the Aaa OC for the covered bonds of DBS Bank Ltd (Aa1 stable) has declined to 0% from 5%, while the Aaa OC for the covered bonds of United Overseas Bank Limited (Aa1 stable) and Oversea-Chinese Banking Corp Ltd (Aa1 stable) has declined to 1% from 5%.

At the same time, Moody's timely payment indicator (TPI) for Singapore Covered Bonds, which reflects the probability that payments on the covered bond will be made in a timely fashion if the issues ceases to make payment under the covered bond remains at 'improbable'.

The TPI takes into account, among other factors, the lower level of liquidity in the secondary mortgage loan market in Singapore compared to other developed covered bond markets, and the legal requirements and processes for Central Provident Fund loans in the cover pool, which can lengthen the refinancing process.

Moody's TPI leeway, which indicates the number of notches by which the issuer's counterparty risk assessment may be lowered without the covered bond rating being affected under Moody's TPI framework, remains at three notches for all Singapore covered bond programmes.