KEB Hana Bank (Hana) has established a $5bn global covered bond programme, putting it in line to become the third Korean issuer in the international market, while Moody’s last month recognised the growing systemic importance of the instrument in South Korea.

The offering circular for Hana’s $5bn (€4.1bn, KRW5.4tr) programme was published on 24 December. BNP Paribas is arranger.

According to the offering circular, Hana’s covered bonds are expected to carry triple-A ratings from S&P and Fitch.

Only Korean Housing Finance Corporation (KHFC) and Kookmin Bank out of South Korea have previously issued covered bonds internationally, KHFC under a framework specific to the government entity backed by pools of mortgages of the country’s banks. Hana’s issuance, like Kookmin’s, will be under South Korea’s covered bond legislation and is understood to have a similar structure to its peer’s.

Although only two Korean institutions have previously issued internationally, Kookmin and others – including Shinhan and Woori – have issued won-denominated covered bonds domestically.

When affirming the ratings of the KHFC and Kookmin covered bonds it rates in December, Moody’s noted that it had updated several assumptions related to Korean covered bonds to reflect the evolution of the Korean market and observed cover pool attributes and performance.

“In particular, Moody’s has lowered the refinancing margin, primarily because of the issuance of domestic covered bonds by several Korean banks since 2019,” it said. “This has increased the depth of the Korean covered bond market, in turn reducing refinancing risk.

The rating agency said the updates reduce the minimum overcollateralisation (OC) consistent with a Aaa covered bond rating.

The rating affirmations came after Moody’s revised the respective foreign currency ceiling (FCC) for Korea from Aa1 to Aaa as part of an update to its FCC methodology.

The three series of KHFC’s issuance rated by Moody’s were left at Aa1, with the rating agency saying that although prevailing OC levels exceeded the minimum OC levels commensurate with a triple-A rating, it does not assume that OC will be continuously maintained at levels consistent with covered bond ratings higher than Aa1.

Kookmin covered bonds rated by Moody’s already carried a Aaa rating.