New issuers from Singapore and Korea may establish covered bond programmes in 2016, according to Moody’s, with new Asian markets also potentially emerging over time. The rating agency said performance of Singaporean and Korean issues was stable during the fourth quarter of 2015.

Last year DBS sold the first benchmark Singaporean covered bond issue, before Kookmin inaugurated a dedicated South Korean covered bond framework, with further issuance following from both jurisdictions.

In a note on the Asia-Pacific region published yesterday (Wednesday), Moody’s reiterated its belief that more banks in both Singapore and Korea may establish new covered bond programmes in 2016.

In a sector comment published earlier this month, in response to a Euromoney/ECBC Asian Covered Bond Forum and ECBC Asian Covered Bond Investor Roundtable held on 8 and 9 March, Moody’s analysts said that banks from each country may look to establish covered bond programmes in spite of having access to cheap funding through other channels.

“While pricing is an important consideration for covered bonds issuance, we believe such securities also provide other benefits, including access to a wider investor base and asset-liability management,” Moody’s added.

Moody’s also noted that discussions on economies such as Malaysia, Thailand, Hong Kong and India concentrated on the lack of covered bond legislative frameworks in these countries and the likelihood of the first issuers coming to market — a process that the rating agency said could take a long time.

Nevertheless, Ning Loh, Moody’s vice president and senior credit officer/manager, said the lack of such legal frameworks does not preclude Moody’s from assigning ratings to covered bonds.

“Without a legal framework, we can still assess the segregation of the cover pool and the strength of other protections based on contractual and securitisation techniques,” he said.

Moody’s added that economies with previous RMBS issuers, such as India, Malaysia and Hong Kong, would benefit from their experience with securitisation.

DBS sold its debut benchmark covered bond in July, printing a $1bn (Eu884m, SGD1.35bn) five year deal, before peer United Overseas Bank (UOB) followed on 2 March to sell the second Singaporean issue, a Eu500m (SGD765m) five year that was the first euro-denominated benchmark covered bond from Asia.

Fellow Singaporean bank Oversea-Chinese banking Corporation (OCBC) recently confirmed that it is working on a covered bond programme.

Kookmin Bank printed the first covered bond to be launched under the South Korean legislation in October, a $500m (Won574tr) five year issue, before issuing another dollar deal of the same size and tenor on 28 January. Korea Housing Finance Corporation (KHFC) in November also sold its first covered bond in over two years, preferring to launch the $500m five year issue under legislation specific to the state-owned institution, as it has done since debuting in 2010.

In a separate comment published on Tuesday, Moody’s said that the performance of Korean and Singaporean covered bonds was stable during the fourth quarter of 2015.

The rating agency cited the stable and strong financial standing of the respective issuers, the stable credit quality of the cover pool assets – residential mortgage loans – and the stable sovereign ratings of Korea (Aa2) and Singapore (Aaa).

Moody’s rates KHFC’s covered bonds Aa1, and all other Korean and Singaporean covered bonds Aaa.