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Announcement:

Moody's: DBS' first covered bond program opens up low-cost, stable funding source

24 Jun 2015

Singapore, June 24, 2015 -- Moody's Investors Service says that DBS Bank Ltd.'s (Aa1 stable, aa3) issuance of Singapore's first covered bond program provides the bank with a new source of low-cost, stable funding, that could lower funding costs and ensure access to funding even in times of market disruption.

"Though DBS' initial issuance volumes may be small, covered bonds provide it with a new funding option that could prove valuable in the future if market conditions turn less beneficial than they currently are," says Simon Chen, a Moody's Vice President and Senior Analyst.

"But for now the credit strength of all three Singaporean banking groups enables them to raise funds through other low-cost channels without offering collateral security, and issuance could thus remain well below the regulatory limit of 4% of assets," adds Chen.

Chen was speaking on Moody's just-released report on the bank, entitled "DBS Bank Ltd.: Covered Bonds Add to Singapore Bank Sources of Low-Cost, Stable Funding".

DBS' maiden covered bond program follows amendments earlier this month to clarify ambiguities in covered bond regulations first introduced in December 2013.

Similar to other countries where covered bonds have been issued, DBS' program establishes a special purpose vehicle to hold the cover pool assets -- mortgage loans originated by DBS that are secured by private residential properties in Singapore -- and to guarantee the covered bonds.

But in addition to transferring the assets from the issuer to the SPV by equitable assignment as is done in other countries, DBS' program also uses a trust structure with DBS as trustee holding a large portion of the loans in the cover pool for the benefit of the SPV.

This trust structure, whose use was confirmed by the June regulatory amendment, preserves banks' priority to enforcement proceeds of the mortgage when borrowers are using their savings under the Central Provident Fund (CPF) -- Singapore's pension system -- to fund down payments and service the loans.

This unique feature greatly increases flexibility for banks to include loans funded through the CPF in cover pools.

Moody's expects the program established by DBS will also set a precedent for Singapore's two other banking groups, Oversea-Chinese Banking Corp Ltd (OCBC, Aa1 stable, aa3) and United Overseas Bank Limited (UOB, Aa1 stable, aa3).

Covered bonds refer to securities that have recourse to the issuing entity and/or the group it belongs to, and to a pool of collateral upon the default of that entity. Covered bonds differ from assets created in securitizations which generally have no recourse against the sponsor.

In Asia Pacific, the main issuers of covered bonds have been Australian and New Zealand banks, although South Korea, like Singapore, has recently introduced laws to facilitate use of the instruments by banks.

Subscribers can access the report at http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1005982

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Simon Chen
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's: DBS' first covered bond program opens up low-cost, stable funding source
No Related Data.
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