The Monetary Authority of Singapore (MAS) yesterday (Thursday) issued a consultation paper on proposed amendments to three areas of a framework it established at the end of 2013 for the issuance of covered bonds by Singaporean banks.

The regulator established the framework through the publication on 31 December 2013 of MAS Notice 648. However, there has not yet been any issuance from Singapore.

MAS said the consultation paper sets out proposals “to further facilitate the issuance of covered bonds in Singapore”. Interested parties have until 28 February to respond.

The first amendment proposed is to explicitly allow a programme structure whereby a trust is declared over the residential mortgage loans used as collateral for the covered bonds, and for the beneficial interest in the declared trust to be transferred to a special purpose vehicle set up for the purpose of holding the cover pool. MAS did not prescribe which structures banks can use, but said they are required to obtain legal confirmation that the assets in the cover pool are beyond their and their creditors’ reach, even in an insolvency situation, and it said that this would still be necessary in the case of use of the aforementioned structure.

A second amendment proposes that in certain circumstances a limit on cash and cash equivalents to 15% of the value cover pool may be exceeded. The proposal is to: allow cash and cash equivalents to be accumulated up to an amount equal to 12 months of payment obligations under a covered bond programme; and implement a one month carve-out from the 15% cap on cash and cash equivalents to account for operational timing differences resulting from the dynamic nature of cover pools and the need to replace assets in certain circumstances.

The third amendment is to clarify that an 80% LTV limit applies to residential mortgages at the time of their inclusion in the cover pool, and that if the LTV subsequently exceeds 80% only the portion of loans up to an LTV of 80% may be counted towards a minimum overcollateralisation level of 103%. Furthermore, the entire amount of the loans will be subject to a 4% encumbrance limit on the value of cover pool assets as a percentage of the total value of the assets of the bank that has been set by MAS.